JPMorgan cuts Rollins to Neutral on demand uncertainty, slashes price target

Investing.com -- JPMorgan downgraded Rollins to Neutral from Overweight and cut its price target to $45 from $70, saying uncertainty around weakening residential demand and a slower-than-expected margin recovery has made the pest control company's near-term risk-reward less compelling despite its intact long-term growth story.

The brokerage said questions raised at Rollins' investor day outweighed the answers, particularly around the sharp slowdown in consumer-initiated demand and the timing of a margin recovery. Management said demand patterns had become more volatile than at any point in nearly a decade, while noting customer retention remained strong and suggesting changes in AI-powered search could be affecting lead generation, though the impact remains difficult to quantify.

JPMorgan analyst Tomohiko Sano lowered fiscal 2026 and 2027 revenue growth forecasts to 8.7% and 8.4%, respectively, while reducing adjusted EBITDA margin estimates to 21.9% and 22.2%. The brokerage also cut adjusted EPS estimates to $1.17 for 2026 and $1.26 for 2027.

The downgrade follows a weaker-than-expected second quarter, with revenue and margins missing expectations as residential brands dependent on search, digital marketing and inbound calls saw declining lead volumes. Residential organic growth slowed to 3.6%, while recurring revenue and relationship-driven businesses such as HomeTeam and Fox remained more resilient.

JPMorgan said Rollins entered the peak season with a cost structure built for stronger growth, leading to profitability pressure as demand softened. Management has lowered its 2026 incremental EBITDA margin target to at least 10% from its longer-term framework of 30%-35%, although it expects improvement to be weighted toward the fourth quarter and reaffirmed confidence in its long-term growth algorithm.

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