Rollins (ROL): 39% ROE, $650M FCF, and 27x earnings under an AI-search test
Rollins clears the channel's hard ROE and free-cash-flow gates at 27 times earnings, with the residential lead slowdown, the AI-search question and the FTC non-compete order laid against the reported numbers.
The pick
Rollins, Inc. (NYSE: ROL) owns Orkin, HomeTeam Pest Defense, Fox Pest Control and about a dozen other exterminating brands. It is this week's featured pick, and it cleared the channel's hard gates on the fiscal year it closed on December 31, 2025: reported return on equity was at or above 31% in each of the last five years, free cash flow was positive in each of them, and the shares trade below the company's own five-year range on every multiple this article tracks. 12
The shares closed at $30.16 on Friday, October 2, 2026. That is 49% below the $59.35 they finished 2025 at. At the October 2 close the market value was $14.51 billion and the enterprise value was $15.52 billion. 13
A halving of the share price against a business that kept growing needs explaining, and three arguments do most of the work. The first is that consumer-initiated demand for residential pest control slowed sharply in the June 2026 quarter, at the brands that pull customers in through search, digital media and inbound phone calls, and the question underneath that fact is whether the loss is temporary or whether AI-written search results are permanently shrinking the flow of calls. The second is that the margin on that revenue fell, because the cost base had been set for faster growth. The third is that the Federal Trade Commission finalized a consent order in 2026 that stops Rollins from enforcing the two-year, 75-mile non-compete agreements it once placed on nearly every technician, which is the rule that kept trained staff from walking to a rival with their route knowledge.
Both arguments can be checked against the accounts. This issue sets out what Rollins sells, where the growth came from, what each argument would have to move in the reported figures to show up, and which numbers would settle it.
Scope and definitions
The price snapshot is the October 2, 2026 close of $30.16, from 481.15 million shares outstanding, a market capitalization of $14,511 million and an enterprise value of $15,518 million. 3
Rollins reports on a calendar year, so fiscal 2025 ended December 31, 2025 and the three most recent completed fiscal years are 2023, 2024 and 2025. The latest reported period is the quarter ended June 30, 2026, published on July 22, 2026, with the Form 10-Q filed the next day. 45
Return on equity below is the reported ROE row in Rollins' historical ratio table, which divides net earnings by average shareholders' equity for the year. 1 Dividing by equity at the December 31 year end instead gives 37.63% for 2023, 35.04% for 2024 and 38.33% for 2025, so the gate clears on either method. 67
Free cash flow means net cash provided by operating activities less capital expenditures. 2 Rollins defines it the same way in its own reporting. 4
The four multiples are P/E on diluted earnings per share, P/B on book value per share, P/FCF as market capitalization divided by free cash flow, and EV/EBITDA as published. Historical multiples are the values recorded at each December 31 year end. 13
The peer set is Rentokil Initial plc (NYSE: RTO), Ecolab Inc. (NYSE: ECL) and ABM Industries Incorporated (NYSE: ABM). Rentokil is the direct global competitor in pest control; Ecolab is the listed hygiene and food-safety services company closest to Rollins in return on equity; ABM is a large U.S. facility-services operator built on the same route-and-labor model. The three serve as valuation anchors only, because Rentokil's 5.97%, Ecolab's 21.96% and ABM's 9.19% returns on equity all sit below this channel's own 15% floor, which rules them out as alternative candidates. 8910
This week's candidate search ran against the Securities and Exchange Commission's XBRL frames interface, which publishes every reported value of one accounting tag for one period across all filers. Pulling net income, shareholders' equity, operating cash flow and capital expenditures for 2023, 2024 and 2025 returned 2,959 companies that carried all four items across those periods, of which 300 cleared a 15% return-on-equity floor in every year together with positive free cash flow in every year. 11121314
The route's reach is the set of SEC filers that tagged those four items inside the annual frames. Each frame holds only the facts whose reported period matches its window, so a company on a fiscal calendar that lands outside the window appears on an approximate match or not at all. Rollins reports on the calendar year and was then verified year by year against its own annual report and quarterly filings, which is what the gate tables below use. 415
The three gates
Gate 1: three consecutive years above 15% return on equity
| Fiscal year | Period ended | Reported ROE | Channel threshold | Result |
|---|---|---|---|---|
| 2021 | December 31, 2021 | 34.74% | >15% | Pass 1 |
| 2022 | December 31, 2022 | 31.00% | >15% | Pass 1 |
| 2023 | December 31, 2023 | 35.91% | >15% | Pass 1 |
| 2024 | December 31, 2024 | 37.52% | >15% | Pass 1 |
| 2025 | December 31, 2025 | 38.94% | >15% | Pass 1 |
The gate covers the three most recent completed years, 2023 through 2025, and the two earlier rows show a five-year band that never dropped below 31%.
What makes the ratio worth reading is where both halves went. Net income rose from $435.0 million in 2023 to $526.7 million in 2025, and shareholders' equity rose over the same span from $1,156 million to $1,374 million. 67 Rising profit on a growing equity base is the version of a high return on equity that survives scrutiny, and Rollins funded $545 million of dividends and buybacks in 2025 while its equity still grew. 2
Part of the reported result comes from how the equity base was built. Rollins carries $2,051 million of goodwill and other intangibles against $1,430 million of equity, so its tangible book value is negative $621 million. 7 A high return on a small, acquisition-built book of equity measures the price of the assets Rollins bought as much as the efficiency of the routes it runs. The trailing twelve months to June 30, 2026 produced a 37.01% return on equity, holding the level. 1
Gate 2: positive free cash flow
| Fiscal year | Free cash flow | Change from prior year | Reading |
|---|---|---|---|
| 2021 | $374.6M | — | Positive 2 |
| 2022 | $435.3M | +16.2% | Positive, rising 2 |
| 2023 | $495.9M | +13.9% | Positive, rising 2 |
| 2024 | $580.1M | +17.0% | Positive, rising 2 |
| 2025 | $650.0M | +12.1% | Positive, rising 2 |
Free cash flow has been positive in each of the last five fiscal years and has risen every year since 2021. The 2025 figure is $678.1 million of operating cash flow less $28.1 million of capital expenditures. 2
The trend flattened in the first half of 2026. Free cash flow for the six months to June 30 was $277.3 million, 10.0% below the $308.2 million of the year-earlier half-year, and the June quarter alone was $166.1 million against $168.0 million. Rollins attributed the decline to the timing of tax payments connected to a tax-credit planning strategy, and guided to a neutral full-year effect. 4
Gate 3: valuation against defined boundaries
The valuation gate clears when current P/E, P/B, P/FCF and EV/EBITDA all sit below Rollins' own five-year medians and when at least two of the four sit at or below the relevant peer median. The table gives the current value, the range and median of the last five December 31 year ends, and the peer range and median.
| Metric | Rollins current | 2021–2025 range | 2021–2025 median | Peer range | Peer median | Reading |
|---|---|---|---|---|---|---|
| P/E | 27.41x | 47.21x–54.83x | 48.60x | 17.78x–36.72x | 20.85x | 44% below own median, above peer median 138910 |
| P/B | 10.15x | 14.20x–21.01x | 16.87x | 1.60x–7.63x | 1.81x | 40% below own median, above every peer 138910 |
| P/FCF | 23.44x | 38.70x–44.94x | 42.63x | 9.19x–40.93x | 12.96x | 45% below own median, above peer median 18910 |
| EV/EBITDA | 17.94x | 30.10x–34.73x | 31.82x | 10.09x–20.68x | 10.88x | 44% below own median, above peer median 138910 |
The historical half of the gate clears on all four measures, and by a wide margin. On each multiple the current value sits below the whole five-year range, and the stock has not been this cheap on earnings in the five years shown. The forward P/E is 25.01x, and free cash flow yield is 4.27% against a dividend yield of 2.42%. 3
The peer half is where the reading has to be careful, because the three peers disagree with each other. Rentokil is the cheaper stock on every multiple, at 20.85x earnings, 1.81x book and 10.88x EV/EBITDA, and it earns 5.97% on equity. 8 Ecolab is the more expensive one at 36.72x earnings and 20.68x EV/EBITDA, and it earns 21.96%. 9 ABM sits at the bottom on 17.78x earnings and 9.19x EV/EBITDA against a 9.19% return on equity. 10
Rollins' 38.94% return on equity is about twice Ecolab's, more than six times Rentokil's and more than four times ABM's, and it charges for that difference. Against the two lower-return peers, Rollins is the more expensive stock on every multiple; a business earning several times their return on equity will trade above their earnings and enterprise multiples for that reason. Against the one peer that earns a comparable return, Rollins is the cheaper stock on three of the four measures: P/E of 27.41x against Ecolab's 36.72x, EV/EBITDA of 17.94x against 20.68x, and P/FCF of 23.44x against 40.93x, while P/B of 10.15x sits above Ecolab's 7.63x because that is the measure the return on equity feeds directly. 39
An honest reading of the peer half is a partial pass. The direct competitor trades for half the earnings multiple and earns a sixth of the return, and Rollins sits above the median of the three on all four measures. The comparison that carries information is the one that holds the return level constant, and on that comparison the discount is real. Which of the two readings dominates is a judgment the reader makes, and the boundary this channel uses says the gate needs at least two of four at or below the peer median, and the raw median of these three leaves that requirement unmet.
What Rollins sells
Rollins kills pests and keeps them away, on a schedule, for more than 2.8 million customers.
The company is headquartered in Atlanta and grew out of a broadcasting business that bought Orkin Exterminating in 1964 and took the Rollins name a year later; it has traded on the New York Stock Exchange since 1968. The brand list now runs to Orkin, HomeTeam Pest Defense, Clark Pest Control, Fox Pest Control, Critter Control, Trutech, Western Pest Services, Waltham Services and several regional names, operating from more than 850 locations in roughly 70 countries with about 22,000 employees. 4
The revenue sits in three service lines. Residential pest control protects houses from rodents, insects and wildlife. Commercial pest control does the same work in workplaces across healthcare, food service and logistics. Termite and ancillary covers termite protection and the add-on work around it: exclusion, crawlspace encapsulation, moisture remediation and insulation. 15
Recurring revenue is the majority of the business. As of December 31, 2025, roughly 75% of revenue came from recurring service agreements, 10% from ancillary work and 15% from one-time jobs. A customer who signs a scheduled pest-prevention agreement tends to renew, and termite baiting and renewals are often billed a year in advance, which is why Rollins carries $196 million of unearned revenue on its June 30, 2026 balance sheet. 415
How a customer arrives is what separates the brands. Some are pulled in by the customer: a homeowner sees a problem, searches online or calls, and books a one-time or recurring visit. Others are reached through relationships: home builders who hand over a warranty program, and door-to-door sales teams that sign up a neighborhood at a time. Rollins runs both, and in the June 2026 quarter the relationship channels grew faster than the ones that wait for the phone to ring. 16
The market is fragmented and the barriers to entry are low, which the company says itself. Rollins competes with Rentokil and a handful of other national operators, with thousands of local firms, and with homeowners who buy a trap and handle the problem themselves. 15
Growth has come from both routes. Organic revenue rose 6.9% in 2025 and acquisitions added 4.1 points, and the company has now posted revenue growth for 99 consecutive quarters. 415 The deals that matter recently are Fox Pest Control, bought in 2023 and run as a door-to-door brand, Saela Pest Control in 2025 and Romex Pest Control in 2026. 415
Revenue, earnings, and cash flow
| Fiscal year | Revenue | Revenue growth | Net income | Diluted EPS | Free cash flow |
|---|---|---|---|---|---|
| 2021 | $2,424M | +12.2% | $356.6M | $0.72 | $374.6M 26 |
| 2022 | $2,696M | +11.2% | $368.6M | $0.75 | $435.3M 26 |
| 2023 | $3,073M | +14.0% | $435.0M | $0.89 | $495.9M 26 |
| 2024 | $3,389M | +10.3% | $466.4M | $0.96 | $580.1M 26 |
| 2025 | $3,761M | +11.0% | $526.7M | $1.09 | $650.0M 26 |
Revenue has grown every year for five years, and diluted earnings per share compounded at about 11% a year from $0.72 to $1.09 across that span. The operating margin held between 18.3% and 19.4% throughout. 6
The June 2026 quarter is where the trend broke. Revenue rose 7.9% to $1,078.6 million, but organic revenue rose 5.7%, below the company's own 7% to 8% target, and the mix inside it moved sharply. 4 Organic residential revenue rose 3.6% while organic commercial rose 7.2% and organic termite and ancillary rose 8.9%. 4
Profit grew more slowly than revenue. Operating income rose 1.5% to $201.4 million, and operating margin fell 110 basis points to 18.7%. Adjusted operating margin fell the same 110 basis points to 19.5%, and adjusted EBITDA margin fell 120 basis points to 21.9%. GAAP earnings per share rose 3.4% to $0.30 and adjusted earnings per share rose 6.7% to $0.32. 4
The company cut its full-year outlook with the quarter. It now guides to organic growth of at least 6% for 2026 and incremental margins of at least 10%, with the margin improvement weighted to the fourth quarter, while keeping its expectation of 2% to 3% of growth from acquisitions and cash conversion above 100%. 16
Balance sheet and capital allocation
At June 30, 2026, Rollins held $109.1 million of cash against $215.9 million of short-term borrowings and $487.1 million of long-term debt, which is the $500 million of 2035 senior notes net of issuance costs and discount. The notes carry a 5.25% coupon and come due on February 24, 2035. Adding $412.3 million of operating lease liabilities brings total debt and leases to $1,115 million and net debt to $1,006 million. 457
By the company's own measure, which divides adjusted net debt by adjusted EBITDA plus rent and stock compensation, the leverage ratio was 1.0x at June 30, 2026 against 0.9x at the end of 2025. A $1.0 billion revolving credit facility was undrawn, and the effective interest rate on the senior notes was 5.6%. 45
The asset side is heaviest in things a service company buys. Goodwill of $1,449 million and other intangibles of $602 million make up 61% of the $3,355 million of total assets, which is what two decades of buying regional pest-control firms leaves behind. 7 Working capital is negative $348 million against $590.4 million of current assets: the gap comes from $215.9 million of short-term borrowings and $196.5 million of unearned revenue, money customers paid before the work was done. 4
Capital returns are steady and funded from operations. Rollins paid $327.9 million of dividends and spent $216.9 million on buybacks in 2025, and over the twelve months to June 30, 2026 it paid $344.5 million of dividends and repurchased $244.8 million of stock. 2 The quarterly dividend is $0.1825, or $0.73 a year, which is a 2.42% yield at the October 2 close and the 23rd consecutive year of increases. 3
One capital-markets event sits in the background. On November 10, 2025, two long-standing shareholder entities, LOR, Inc. and Rollins Holding Company, Inc., agreed to sell 17,391,305 shares at $57.50 each, with an option for 2,608,695 more that was also exercised; the sale closed on November 12, 2025, and Rollins received no proceeds. The company bought back 3,478,260 of the offered shares for about $200 million at $56.93. 15
The three arguments against the multiple
The lead-generation argument. On the July 23 earnings call, the chief executive, Jerry Gahlhoff, said the weakness was "concentrated in brands such as Orkin that rely more heavily on consumer-initiated demand through search, digital media, and inbound calls," that the lead environment worsened through the quarter before improving at the end of June, and that the company did not believe a single explanation covered it. 16 An analyst asked directly whether changes in SEO or the AI-generated overviews in search results were hurting leads. Gahlhoff answered that the company had tested the search environment and found that "we just had fewer people year-over-year actively searching the digital channel for pest control needs," and added that an AI explanation sat awkwardly with the fact that lead flow recovered at the end of June without any change in strategy. 16
What the reported figures can settle is narrow and worth stating. Retention held and customers accepted a price increase, which puts the weakness at the top of the funnel, in new-customer acquisition. 16 The relationship channels that do not depend on inbound search grew faster than the whole company in the same quarter: HomeTeam, a builder-facing brand, grew residential revenue at a double-digit rate, and Fox, which sells door to door, grew organically in the high teens. 16 If a permanent fall in search leads were the whole story, those brands would have slowed with Orkin, and they did not. The company also pointed to pest pressure: calls for mosquitoes, residential rodents and carpenter ants all fell year over year, and the mosquito season started late. 16 The rate at which residential organic growth recovers over the next two quarters is the single number that separates a soft season from a shrinking channel.
The margin argument. The second quarter's margin decline has a mechanical explanation that the quarter's own report makes plain. The company entered peak season with a cost structure built for the growth it had expected, medical and people costs ran high, and fuel added pressure; service salary de-leverage and medical plan expenses together cost 70 basis points of margin and fleet costs another 20. 16 Demand is the multiplier on that cost base, which is why a 5.7% organic quarter pushed adjusted EBITDA margin down 120 basis points. Management has guided to incremental margins of at least 10% for the year and to keep its longer-term target of at least 30% incremental margins, and it has tied the timing of the recovery to the fourth quarter. 16 An incremental margin near 30% over several quarters would show the cost base and the demand have re-aligned; an incremental margin under 10% for two straight quarters would show the company is funding growth it is not getting.
The labor-mobility argument. In April 2026 the Federal Trade Commission ordered Rollins to stop enforcing non-compete agreements on its U.S. pest-control workforce, an action that reached more than 18,000 employees and was the largest in the agency's campaign to police restrictive covenants one employer at a time. 1718 The complaint alleged that Rollins required nearly all employees, down to technicians and customer-service representatives, to sign agreements barring them from pest-control work for two years after leaving, within a 75-mile radius of their branch, and that enforcing those agreements suppressed wages and slowed the entry of competing firms. 17 Rollins did not admit liability, and the final consent order approved in June 2026 runs for ten years, requires notice to affected employees, and bars non-solicitation clauses broad enough to stop a former technician from winning customers through general advertising or from answering a Rollins customer who calls. Non-competes remain available only for equity-eligible directors, officers and senior leaders. 1719
The order removes a barrier that protected branch routes from departing staff. What it costs shows up in labor costs and in how much a rival can grow by hiring, and Rollins' own annual report already lists labor availability and wage inflation as a risk. 15 The order is also one of a series the FTC has brought, and the agency sent warning letters to 13 other pest-control companies at the same time, so the whole industry is losing the same protection at once. 18 A measurable marker would be technician turnover or sales-headcount cost rising faster than revenue; the company has not disclosed either separately.
The finance function also changed hands in the period. The chief financial officer, Kenneth Krause, resigned on May 26, 2026 to take a role outside the industry, effective June 15, and William Harkins, previously the chief accounting officer, was promoted into the seat; the filing records no disagreement over operations, policies or practices. 20 And two long-standing shareholder entities sold 17.4 million shares, about 3.6% of the shares outstanding, in November 2025 at $57.50, which leaves the possibility of further sales hanging over the shares. 15
Catalysts and checkpoints
- Third-quarter 2026 results, expected October 28, 2026. The figure that matters is organic revenue growth against the 6% floor and the residential organic rate against the 3.6% printed in the second quarter. 34
- The fourth-quarter margin print. Management put the margin recovery in the fourth quarter and guided to at least 10% incremental margins for the year. A fourth-quarter incremental margin back above 20% would confirm the cost base and demand have re-aligned. 16
- Residential organic growth by channel. HomeTeam and Fox grew at double digits and high teens in the second quarter while Orkin's search-driven demand fell. A quarter in which Orkin's residential organic rate returns above 5%, or one in which Fox and HomeTeam fall toward it, decides whether the problem is the season or the channel. 16
- Acquisition contribution. Rollins expects 2% to 3% of 2026 revenue growth from deals and spent $117 million on acquisitions in the second quarter alone. Watch whether acquired revenue keeps filling the gap left by slower organic growth, and whether goodwill keeps rising faster than cash flow. 416
- Any further FTC action. The Rollins order is a template, and the agency sent warning letters to 13 other pest-control firms. Further consent orders would confirm that the FTC is dismantling the industry's restrictive-covenant model, which raises the labor-cost base across the sector. 18
Risks to monitor
- Consumer-initiated demand keeps falling. Trigger: residential organic revenue growth below 3% for two consecutive quarters, against 3.6% in the second quarter of 2026. At that level the search channel is shrinking faster than the relationship channels can offset, and the multiple would be pricing a permanent loss. 4
- Margin investment outruns demand. Trigger: incremental EBITDA margin under 10% for two consecutive quarters, against the guided floor of 10% for 2026 and the long-run target of at least 30%. Below that floor the company is spending to grow without getting the growth. 16
- The non-compete order raises labor costs. Trigger: reported people-related costs rising faster than revenue for two straight quarters, or disclosed technician turnover above the recent range. The order lets trained staff leave for a rival or start their own firm, and the company does not separate that cost today. 1617
- The acquisition engine stalls. Trigger: a quarter with no acquisitions closed and organic growth below 6%, or a goodwill or intangible impairment. Goodwill and intangibles of $2,051 million sit against $1,430 million of equity, so a write-down would hit book value directly. 47
- Free cash flow stops growing. Trigger: full-year 2026 free cash flow below the $650.0 million of 2025, beyond the tax-timing effect the company has described. A second year of flat-to-down cash flow would put the dividend growth streak, now 23 years, under pressure at a 66% payout ratio. 23
- Family selling continues. Trigger: a further registered sale by LOR, Inc. or Rollins Holding Company. The November 2025 offering moved 17.4 million shares at $57.50, and further sales would add supply at the same time as the operating questions. 15
Conditional bottom line
Rollins clears the channel's first two hard gates outright. Reported return on equity was 35.91%, 37.52% and 38.94% in 2023 through 2025 on average equity, and 37.63%, 35.04% and 38.33% on year-end equity, in both cases against a book value that rose from $1,156 million to $1,374 million. Free cash flow was positive in each of the last five years and rose every year to $650.0 million in 2025, though it slipped 10% in the first half of 2026 on tax timing.
The valuation gate is a partial pass, and the split belongs in the decision. Against its own record the stock clears on all four multiples, at 27.41x earnings against a five-year median of 48.60x and 17.94x EV/EBITDA against 31.82x, which is the cheapest the shares have been on these measures in the period shown. Against the peer set the raw median says premium on all four, and the direct competitor Rentokil is cheaper on every multiple while earning a sixth of the return on equity. The comparison that holds the return level constant, Ecolab at 21.96%, makes Rollins the cheaper stock on earnings, free cash flow and enterprise value. Free cash flow yield is 4.27% and the forward multiple is 25.01x. 1389
Three conditions keep the case intact over the next year. Residential organic revenue growth returning above 5% would show the consumer-initiated channel is intact and the second quarter was a late season. Incremental margins above 20% in the fourth quarter would show the cost base has re-aligned with demand. Free cash flow for 2026 at or above 2025, once the tax timing reverses as guided, would show the cash generation is real and that the dividend and buyback can keep running.
If residential organic growth stays below 3% for two consecutive quarters while incremental margin stays under 10%, the discount is pricing a business whose funnel is shrinking and whose costs are not, and the case ends on its own terms.
Informational only: This article is for research and education, not investment advice. It does not account for your objectives, risk tolerance, taxes, or portfolio.
References
- 1Rollins financial ratios
stockanalysis.com
- 2Rollins cash flow statement
stockanalysis.com
- 3Rollins statistics
stockanalysis.com
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- 6Rollins financials
stockanalysis.com
- 7Rollins balance sheet
stockanalysis.com
- 8Rentokil Initial statistics
stockanalysis.com
- 9Ecolab statistics
stockanalysis.com
- 10ABM Industries statistics
stockanalysis.com
- 11SEC XBRL frames: net income, calendar 2025
data.sec.gov
- 12
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- 15Rollins 2025 Form 10-K
sec.gov
- 16Rollins second quarter 2026 earnings call transcript
finance.yahoo.com
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- 20Rollins 8-K, CFO transition
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