$24.71
$53.18
bear $24.71
base $39.98
bull $53.18
margin of safety $27.00
market price* $33.45
Rollins is the largest pest-control company in the United States, operating under Orkin, HomeTeam Pest Defense, Clark Pest Control, Northwest Exterminating, Fox Pest Control, Saela and other brands. In 2025 it booked $3.76 billion of revenue: residential pest control $1.69 billion (45%), commercial pest control $1.24 billion (33%) and termite and ancillary work $0.78 billion (21%), plus small franchise fees. Most of the work is recurring service on contracts that renew automatically, and much of the commercial work (restaurants, food processors, warehouses, healthcare) is required by health and food-safety rules, so demand does not depend on the economy in the way most services do. Revenue has grown for 99 consecutive quarters, through 2008-09 and 2020. What the business earns. We measure the cash the owners could take out each year: operating cash flow with short-term working-capital swings removed, minus stock-based pay (a real cost), minus the capital spending needed to keep the business as it is. Two judgements matter. First, Rollins adds back its bad-debt provision as a non-cash item; we treat bad debts as a real cost and deduct them ($36 million in 2025). Second, about $90 million a year of amortization of purchased customer contracts is added back, because it is the cost of past acquisitions, not of running the business. Those acquired customers do drop away over time, but that loss already shows up in the organic growth rate, and we give no credit for future acquisitions without charging their full purchase price. Capital spending is tiny (under 1% of revenue) because the work is done by technicians in vehicles held on operating leases, whose cost already runs through operating cash flow. On this basis owner earnings rose every year, from $0.36 per share in 2016 to $1.33 in 2025, with the share count flat at about 484-492 million. Before interest, the business produced $1.37 per share in 2025. Starting level. We do not start from 2025 itself. Over 2021-2025 the business converted 16.0%-17.7% of revenue into cash before interest, with a median of 16.2%. The first half of 2026 shows why the top of that range should not be assumed: second-quarter operating margin fell to 18.7% from 19.8%, net income grew only about 2% in each of the first two quarters while revenue grew about 9%, and residential organic growth slowed to 3.6% as customer lead volumes fell and costs were sized for faster growth. Applying the 16.2% median to 2025 revenue gives a starting level of $1.26 per share, about 8% below what was actually earned in 2025. Revenue itself is not cyclical here, so we apply the normal margin to the latest full year rather than averaging old, smaller revenue figures. Growth. Cash flow per share before interest grew 15% in 2025 (owner earnings per share grew 18%). The base case assumes far less: 5.5% organic growth for the first five years and 4.5% for the next five, below the 6.9% organic growth of 2025 and the 6.1% of the first half of 2026. The evidence is a decades-long record of annual price increases on a recurring customer base plus steady customer additions. We also credit acquisitions, because acquiring small and mid-sized pest companies every year has been a self-funded, repeatable habit for decades (acquisitions added 4.1% to revenue in 2025), but only at 2% of revenue a year and only after paying for them at the price Rollins actually paid for Saela in April 2025 (about 2.8 times revenue). Because that price yields under 6% at first, acquisitions add only about $2.60 per share of value. After year 10 we credit only price-driven growth of 3%, falling to 2% after year 20 and to zero after year 30. Margin expansion, new markets and a recovery in residential demand are not credited. Debt. Rollins owes $500 million of 5.25% notes due 2035 and $216 million of commercial paper (June 30, 2026), against $109 million of cash, of which we treat about $50 million as surplus. Because the notes cost less than 6% for nine more years, they are worth about $25 million less than face. Net debt is about $628 million, or $1.30 per share. Interest of under $40 million a year is covered about 14 times or more by cash flow before interest in every case, and no maturity before 2035 affects the outcome. Bear case ($24.71). Residential softness spreads and a recession hits termite and new-home work: organic growth of 1% for two years, then 3% (roughly pricing alone) for eight years and 2% for ten, margin settles at 15% (the 2019-2020 level), and acquisitions stop. The business is worth about $26.01 per share; after $1.30 of debt, equity is worth $24.71. Base case ($39.98). The organic growth and acquisition path described above at the median 16.2% margin. The business is worth about $41.27 per share; after $1.30 of debt, $39.98. Bull case ($53.18). Organic growth holds near its 2022-2025 pace (7% for five years, then 6%), margin returns to the 17% already reached in 2024, and acquisitions continue at their historical 3% of revenue a year, paid for at the same price. The business is worth about $54.48 per share; after $1.30 of debt, $53.18. Change since our prior estimate. Our earlier base estimate was $31.50. We now value every company at a single 6% discount rate and express risk only through the gap between the cases, which raises all three values. Against that, we now assume much slower growth than before (5.5% organic plus 2% from acquisitions, versus 10%), start below 2025's actual cash flow because of the 2026 margin squeeze, and charge acquisitions at their full purchase price. Margin-of-safety price. At $27 the price is about 9% above the bear-case value, and the base case implies roughly a 20% annual return if the shares move to base-case value within three years, given value growth of about 6% a year including dividends. The cases are fairly tight for a business this predictable (bear is about 62% of base), which is why the margin-of-safety price can sit this close to the bear case. What would make this wrong. Residential slowdown turning into lasting customer losses to cheaper, private-equity-backed or door-to-door competitors; labor costs rising faster than Rollins can raise prices; or acquisitions made at higher prices that never earn their cost back. The 2026 margin trend is the thing to watch: two quarters of near-flat profit on 9% revenue growth is not yet a new normal, but a third would argue for a lower starting level.