If El Nino results in a winter and spring comparable to that of what was seen in ’97-’98, a good deal of California will experience extreme weather that will result in flooding and other negative outcomes. For insurance companies, such conditions don’t necessarily spell above average, but for disaster service companies the outlook could be quite bright.
ServiceMaster (SERV) is one company that is well footed to benefit from an increase in weather related disasters from El Nino or other sources. The company’s two main operations are its franchise services and Terminix. The franchise portion provides a wide variety of disaster recovery services. For example, when your building is flooded, SERV provides industrial fans and other drying devices to mitigate the damage of water in a commercial or home structure. Terminix is a pest control service provider, which is primed to deal with greater insect and rodent activity based on the impending shift toward a period of more inclement weather.
The basic fact is that if we assume El Nino will bring a break in the drought California has been in for the past 4-5 years, then the changes of local and regional flooding will increase significantly. Whether it is large scale run off of water from hills into homes or simply roofs that have not been tested with a sizable rainfall in years, the potential for flooding in California is much higher than normal because of the extended drought. Flooding translates into increased business for SERV. When disaster strikes, SERV benefits. The stronger the El Nino, the better the business for SERV.
Note – SERV is currently trading near its 52-week high. You may want to watch for a pullback to establish a position within the stock. At the current price, the dividend yield is 1.2% annually.
Disclosure: No Position