7 Stocks Billion Dollar Hedge Fund Voss Capital Is Crazy About

3. Rentokil Initial (NYSE:RTO)

Value of Voss Capital’s 13F Position (6/30/2024): $56.2 million

According to Voss, UK-based Rentokil Initial (NYSE:RTO) “is the global leader in pest control,” as its sales are over 100% higher than those of its largest competitor.

“Pest control is a remarkably high-quality business with largely recurring revenue, high returns on capital employed, and low cyclicality,” Voss reported.

In Q3, Rentokil Initial (NYSE:RTO)’s organic revenue increased 2.6% versus the same period a year earlier. However, the organic sales of its North America business only rose 1.4% YOY. Rentokil Initial (NYSE:RTO) expects its adjusted operating margin for the full year to come in at 15.5%, and it noted that it would take cost-cutting measures going forward.

Analysts, on average, expect its earnings per share to climb to 86 cents in 2025 from 82 cents this year,

Calling the valuation of Rentokil Initial (NYSE:RTO) stock attractive, Voss reported that the shares had been punished because the company was having difficulty integrating U.S.-based Terminix which it had acquired in October 2022. Voss predicted that Rentokil Initial (NYSE:RTO) would rebound once it overcome these difficulties and its growth accelerates.  The fund manager estimated that the shares could surge about 100% in 18 months.

Rentokil Initial (NYSE:RTO) has dropped 5% since May 24.

Broyhill Asset Management stated the following regarding Rentokil Initial plc (NYSE:RTO) in its Q3 2024 investor letter:

“Rentokil Initial plc (NYSE:RTO) is a UK-based pest control company that grew its US presence by acquiring Terminix in 2022. The industry is largely fragmented and has the tailwind of a warming environment, expanding the seasons and geographies where pests thrive. Trading at a steep discount to its nearest peer, Rollins, we see plenty of room for upside as activist investor Nelson Peltz holds management accountable during the Terminix integration.”