Rollins, Inc. (NYSE:ROL) provides pest control to households and businesses, earning revenue from repeat treatments, termite protection, and additional services. Customers need protection throughout the year, but renewing existing accounts and winning new households involve different costs.
Management reported weaker consumer searches, digital inquiries and inbound calls during the second quarter. In September, it said lead recovery remained uneven and linked much of the disruption to AI search changing how customers find providers. The company appears in Insider Monkey’s 20 Best Stocks to Buy and Hold for a Lifetime. The investment question is whether dependable relationships can support the valuation when expanding that customer base becomes harder.
Dense Routes Must Deliver More Than Repeat Revenue
Rollins, Inc. has an advantage when technicians serve several nearby properties. More stops within an existing territory spread travel, supervision, and branch costs across additional revenue. Scheduling technology helps organize the network, while reliable service encourages renewals. Management reported no notable deterioration in retention during the second quarter.
Recurring services and ancillary work together represented more than 80% of 2025 revenue. Retaining customers protects route density, but training, staffing and service quality require continuing investment. Similar economics explain why shorter delivery routes need profitable orders to create value. The network deserves a premium when each retained relationship generates attractive profit after those costs.
The Earnings Gap Requires a Real Recovery
Rollins, Inc. carries approximately 26x forward P/E and 30x trailing P/E. Trailing P/E uses historical earnings; forward P/E uses forecast earnings. At 26x, investors are paying for an improvement that needs better customer conversion and labor productivity.
Analysts expect adjusted EPS growth of approximately 4% in 2026 and 10% in 2027. Company-reported adjusted earnings exclude specified acquisition-related amortization, contingent-consideration adjustments and certain asset-sale effects. Acquired customer relationships still have a purchase cost, and amortization can continue for years.
The operating challenge for Rollins, Inc. is visible in its margins. Second-quarter revenue rose 7.9%, while operating profit increased just 1.5%. Operating margin fell to 18.7% from 19.8%; adjusted operating margin also declined 1.1 percentage points. Acquisition adjustments therefore leave the underlying margin pressure intact.
Employee service costs absorbed 30.5% of second-quarter revenue, versus 29.8% a year earlier. Selling and marketing edged up to 14.1% from 14.0%. Staffing had been prepared for stronger demand, but management said in September that it had already reduced staffing to reflect actual demand. That adjustment can improve technician utilization. Continuing medical and fuel pressures still need to be covered through pricing, productivity or additional sales.
Financing also matters: quarterly net interest expense rose to $9.4 million from $7.4 million. Acquired profits must cover funding and service costs before they improve earnings per share.
Lower taxes provide some earnings support: management expects an effective tax rate below 25% for 2026. That benefit helps near-term EPS, while sustained growth requires improving service profitability. That trade-off helps explain why loyal customers can still become more expensive to retain: recurring revenue is valuable only after funding the customer relationship.
A Smaller Multiple Reflects Slower Profit Growth
The 26x forward P/E for Rollins, Inc. compares with approximately 48x at year-end 2025. The earlier valuation accompanied a business delivering 13.1% annual adjusted EPS growth, 11.6% operating cash-flow growth and a 20.0% adjusted operating margin.
The outlook has changed. Organic revenue growth slowed from 6.9% for 2025 to 5.7% in the second quarter, and analysts now expect modest earnings growth this year. Reduced confidence that additional revenue will produce proportionately more profit helps explain the lower multiple. The previous valuation offers little guidance to fair value unless the business can restore comparable earnings momentum.
For Rollins, Inc., better conversion remains essential. Management said in September that the early improvement in leads had not continued consistently through July and August. Home-builder relationships and door-to-door selling remained stronger channels. The company is reallocating its existing marketing budget across channels and improving lead tracking. If that spending produces fewer retained accounts, acquisition cost per customer rises. Better conversion must therefore make the same marketing dollars more productive. This focus on improving customer acquisition efficiency is also why Rollins was included in our list of large-cap stocks.
Cash generation tests whether that improvement reaches shareholders. Quarterly operating cash flow declined 1.5% to $173 million, leaving $166 million after capital expenditure. Management attributed part of the cash-flow pressure to tax-payment timing and expects that effect to reverse later in the year. That reversal would support cash flow without improving underlying service margins. Durable cash growth also requires stronger operating earnings. Acquisitions and dividends together consumed more than quarterly free cash flow, increasing the importance of internally funded expansion.
The Closest Rival Sets a Tough Operating Benchmark
Rollins, Inc. trades at approximately 26x forward P/E, compared with 14x for Rentokil Initial plc (NYSE:RTO), its closest large operating peer. Both benefit from recurring treatments and local service networks. The peer also operates hygiene and other services across more international markets, giving its earnings a different mix.
Analysts expect adjusted EPS growth of approximately 9% in 2026 and 9% in 2027 at Rentokil Initial plc (NYSE:RTO), against approximately 4% and 10%, respectively, for Rollins, Inc.. Both have December year-ends. Similar expected growth in 2027 means a premium would need to rest on earnings durability, cash generation and execution.
First-half adjusted operating margin was 18.3% for the company, versus 15.5% for the peer overall. The peer’s narrower North American Pest Control Services business, excluding Business Services, achieved 19.7%. Different business mixes and adjustment policies matter: the competitor reports under IFRS and excludes transformation expenses and termite provisions from adjusted profit. The operating comparison turns on how much profit becomes cash after those costs.
The competitor also faces $115 million to $125 million of expected provision-related cash outflows in 2026, mainly for legacy termite claims, and carries net debt of 2.4x adjusted EBITDA. Its first-half continuing-operations free cash flow, before one-off cash costs, rose 12.8%. That measure adds back $70 million of one-off cash costs, versus $48 million previously. Those payments still reduce cash available for reinvestment and shareholders.
Both businesses reported softer North American residential leads. That shared pressure makes profitable customer additions especially important. Strong service can protect relationships, while pricing power still depends on keeping enough customers.
The Premium Needs Better Customer Economics
Rollins, Inc. can justify 26x forward P/E through improving conversion, fuller technician schedules, and retained customers who generate growing cash profits. Recurring relationships provide the foundation. Staffing reductions improve the setup, but sustained recovery still requires profitable new accounts.
The valuation leaves limited room for selling and labor costs to keep outgrowing revenue. Sustained margin recovery and operating cash growth after tax-timing effects would strengthen the case. If winning and serving customers continues to absorb most of the additional revenue, the valuation will become harder to sustain.
While we acknowledge the risk and potential of ROL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ROL and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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This article is originally published at Insider Monkey.
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