Rentokil Initial (RTO) AI Stock Analysis

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Rentokil Initial

(NYSE:RTO)

71Outperform

Rentokil Initial's strong financial performance and effective cash flow management are major strengths. However, technical indicators suggest bearish momentum, and valuation metrics indicate potential overvaluation. The earnings call provided mixed insights, with international growth overshadowed by North American challenges.

Rentokil Initial (RTO) vs. S&P 500 (SPY)

Market Cap

$9.98B

Dividend Yield2.57%

Average Volume (3M)1.18M

Price to Earnings (P/E)25.6

Beta (1Y)1.04

Revenue Growth3.96%

EPS Growth-17.48%

CountryUS

Employees68,485

SectorIndustrials

Sector Strength64

IndustrySpecialty Business Services

Share Statistics

EPS (TTM)0.78

Shares Outstanding504,908,000

10 Day Avg. Volume1,199,417

30 Day Avg. Volume1,181,470

Financial Highlights & Ratios

PEG Ratio0.79

Price to Book (P/B)N/A

Price to Sales (P/S)1.61

Price to Cash Flow (P/CF)14.20

P/FCF Ratio15.70

Enterprise Value/Market CapN/A

Enterprise Value/RevenueN/A

Enterprise Value/Gross ProfitN/A

Enterprise Value/EbitdaN/A

Forecast

1Y Price TargetN/A

Price Target UpsideN/A

Rating ConsensusN/A

Number of Analyst Covering0

Rentokil Initial Business Overview & Revenue Model

Company DescriptionRentokil Initial (RTO) is a global leader in the provision of pest control and hygiene services. Operating across multiple sectors, the company offers comprehensive solutions to manage pest-related issues and ensure cleanliness and safety in various environments. Rentokil Initial serves a diverse range of clients, including residential, commercial, and industrial sectors, with core services that include pest control, hygiene services, and property care solutions.

How the Company Makes MoneyRentokil Initial generates revenue primarily through its pest control and hygiene service offerings. The company's pest control services include the identification, prevention, and eradication of pests across residential, commercial, and industrial properties. These services are provided through one-time treatments or ongoing service agreements, which create a recurring revenue stream. The hygiene services division offers products and services such as hand hygiene, air care, and washroom solutions, which are typically contracted on a subscription basis. Rentokil Initial also benefits from strategic partnerships and acquisitions that expand its market reach and service capabilities. The company's earnings are further supported by its extensive global network, allowing it to leverage economies of scale and maintain a competitive edge in the industry.

Rentokil Initial Financial Statement Overview

Summary

Rentokil Initial demonstrates strong financial performance with steady revenue growth and healthy profitability. The company maintains a healthy balance sheet, though rising debt levels require attention. Effective cash flow management supports strategic investments.

Income Statement

Very Positive

Rentokil Initial has demonstrated steady revenue growth, with a significant increase from 2020 to 2024. The gross profit margin and net profit margin indicate healthy profitability, although there was a slight decline in EBIT and EBITDA margins between 2023 and 2024. The company's ability to maintain a high revenue growth rate and strong margins highlights its competitive positioning in the corporate services industry.

Balance Sheet

Positive

The balance sheet reflects a strong equity base with a moderate debt-to-equity ratio, indicating prudent financial leverage. The equity ratio is stable, but there is a noticeable increase in total debt over the years. Return on equity is healthy, driven by consistent net income growth, though the rising debt level poses a potential risk if not managed carefully.

Cash Flow

Very Positive

Operating cash flow remains robust, supporting the company's free cash flow generation. The free cash flow to net income and operating cash flow to net income ratios are favorable, showcasing effective cash conversion. However, the free cash flow growth rate has been inconsistent, suggesting fluctuations in capital expenditures and cash management strategies.

Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Breakdown
Income Statement		Total Revenue
5.44B	5.38B	3.71B	2.95B	2.79B
	Gross Profit
726.00M	4.45B	977.00M	714.80M	653.00M
	EBIT
549.00M	625.00M	498.00M	366.20M	301.00M
	EBITDA
990.00M	1.16B	767.00M	656.00M	581.00M
	Net Income Common Stockholders
307.00M	381.00M	232.00M	263.00M	186.00M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
927.00M	1.55B	2.17B	670.00M	2.12B
	Total Assets
10.55B	11.13B	11.92B	4.32B	5.58B
	Total Debt
4.14B	4.73B	5.40B	1.93B	3.14B
	Net Debt
3.22B	3.19B	3.23B	1.26B	1.19B
	Total Liabilities
6.33B	7.04B	7.82B	3.06B	4.45B
	Stockholders Equity
4.23B	4.09B	4.10B	1.26B	1.13B
Cash Flow		Free Cash Flow
507.00M	526.00M	414.00M	407.20M	382.60M
	Operating Cash Flow
678.00M	737.00M	604.00M	567.10M	535.10M
	Investing Cash Flow
-373.00M	-416.00M	-1.20B	-445.00M	-509.20M
	Financing Cash Flow
-752.00M	-361.00M	1.32B	-417.10M	253.50M

Rentokil Initial Technical Analysis

Technical Analysis Sentiment

Negative

Last Price19.91

Price Trends

50DMA

23.58

Negative

100DMA

24.27

Negative

200DMA

26.00

Negative

Market Momentum

MACD

-0.36

Negative

RSI

48.12

Neutral

STOCH

67.65

Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For RTO, the sentiment is Negative. The current price of 19.91 is below the 20-day moving average (MA) of 21.86, below the 50-day MA of 23.58, and below the 200-day MA of 26.00, indicating a bearish trend. The MACD of -0.36 indicates Negative momentum. The RSI at 48.12 is Neutral, neither overbought nor oversold. The STOCH value of 67.65 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for RTO.

Rentokil Initial Risk Analysis

Rentokil Initial disclosed 27 risk factors in its most recent earnings report. Rentokil Initial reported the most risks in the “Finance & Corporate” category.

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Latest Risks Added 0 New Risks

Rentokil Initial Peers Comparison

Overall Rating

UnderperformOutperform

Sector (62)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
UNF	72 Outperform	$2.94B	20.44	7.17%	0.83%	5.04%	31.69%
RTO	71 Outperform	$9.98B	25.56	7.44%	2.57%	3.96%	-17.48%
ULS	71 Outperform	$10.89B	33.42	41.85%	0.94%	7.17%	25.35%
CBZ	69 Neutral	$3.90B	65.31	3.19%	―	13.97%	-54.48%
ABM	66 Neutral	$2.72B	34.45	4.46%	2.15%	2.81%	-67.57%
Sector *	62 Neutral	$7.16B	12.21	3.05%	3.43%	3.62%	-14.48%
ARMK	60 Neutral	$8.31B	24.70	11.46%	1.27%	-5.98%	-46.55%

* Industrials Sector Average

Performance Comparison

RTO

Rentokil Initial

19.91

-8.77

-30.58%

ABM

ABM Industries

42.24

-0.69

-1.61%

CBZ

CBIZ

70.03

-6.95

-9.03%

UNF

UniFirst

161.86

-2.65

-1.61%

ARMK

ARAMARK Holdings

30.39

-1.47

-4.61%

ULS

UL Solutions Inc. Class A

53.08

18.44

53.23%

Rentokil Initial Earnings Call Summary

Earnings Call Date: Mar 6, 2025 | % Change Since: -19.65% | Next Earnings Date: Jul 31, 2025

Earnings Call Sentiment Neutral

The earnings call highlighted strong international growth and improvements in customer and colleague retention. However, it was overshadowed by challenges in North America, including lower-than-expected revenue growth, profit declines, and integration complexities. The company is implementing strategic changes to address these issues, but the overall sentiment reflects the significant challenges that remain.

Highlights

International Revenue Growth

International businesses outside of North America delivered strong revenue growth of 8.2%, with organic revenue contributing 4.7%. Pest Control organic growth was particularly strong at 5.3%.

Customer and Colleague Retention

Colleague retention increased by 2.4%, reducing recruitment needs by around 1,000 people. Customer satisfaction improved with a one-point increase in Net Promoter Score and customer retention rose by 50 basis points.

Satellite Branch Expansion

Opened 10 satellite branches in Q4, with a plan to exceed 500 locations including satellites. The satellite branches are part of a strategy to enhance local presence and operational efficiency.

Workwear Business Performance

French Workwear business delivered revenue growth of 7.1%, all organic, with adjusted operating profit growing by 8.6% and margins at 17.7%.

International Business Growth

International revenue grew by 8.2% to GBP 2.2 billion, with 4.7% organic growth led by Pest Control and Workwear. The Europe and LatAm region saw a 5% increase, with adjusted operating profit also up by 5.7%.

Lowlights

North America Underperformance

North American revenue grew by only 1.3%, with organic growth at 1.5%. Adjusted operating profit declined by 7% due to below-plan revenue growth and higher in-year investments.

Profit Decline and Margin Reduction

Adjusted operating profit was down 7.1% to GBP 860 million, with a corresponding margin reduction of 130 basis points.

Cost and Investment Inefficiencies

A portion of investments in 2024 did not drive optimal effectiveness, leading to suboptimal sales and marketing returns. These will be redirected in 2025.

Integration Challenges

The integration of Terminix is complex and has led to periods of disruption. The program is expected to be complete by the end of 2026, with significant cost savings anticipated post-integration.

Weak Q1 Start and Lead Generation Issues

Q1 2025 is off to a slow start due to weak lead flow, adverse weather, and the leap year effect. Lead generation and sales conversion are areas needing significant improvement.

Company Guidance

During the call, Rentokil Initial provided guidance on its performance and strategy for 2025. The company reported a revenue of GBP 5.6 billion in 2024, marking a 3.9% increase, with organic growth at 2.8%. The North American business underperformed with only 1.3% growth, while International saw an 8.2% increase. Customer retention improved by 60 basis points to 80.1%, and colleague retention increased by 4.2%. The company plans to continue its integration of Terminix, aiming to achieve operating profit margins above 20% by 2027. For 2025, Rentokil aims to enhance lead generation, improve sales conversion, and expand its branch network to over 500 locations, including new satellite branches. The company's capital allocation strategy prioritizes organic investment, bolt-on acquisitions, and a progressive dividend policy, with a target net debt-to-EBITDA ratio of 2 to 2.5x. Rentokil expects to meet market expectations for 2025 despite a slow start in Q1.

Glossary

OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.

NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.

UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.