Inflation Pressuring Rollins’ Margins in Q1 but Full-Year 2022 Earnings Outlook Remains Robust

While inflation pressures mounted for Rollins in the first quarter of 2022, we think the full-year earnings outlook remains bright. First-quarter organic revenue grew 6.3%, broadly tracking our full-year expectations as the U.S. economy continues to recover from the pandemic. The contribution from tuck-in pest control acquisitions was also robust and added a further 3.3% to top line growth. Still, gross margin pressure was evident as fuel and personnel costs spiked in the present inflationary environment. Despite the near-term challenge that inflation poses, our long-term thesis for the wide-moat name is unchanged as is our USD 27.70 per share fair value estimate. Still, Rollins shares screen expensively, trading at a 21% premium to our valuation.