Merrill Lynch downgraded Republic Services (RSG

) to neutral from buy.

Analyst Lorraine Maikis says higher claims and rising healthcare costs necessitated a $21.9 million accrual increase in the waste management company's self-insurance plan. She says fuel wasn't hedged in 2003, and higher costs continue to plague results. Maikis notes severe rainfall this spring and summer led to heavier waste; in areas where Republic Services isn't integrated, it receives flat or per container collection fee, and pays higher disposal fees.

She notes 30% of collection volumes, from the cyclical industrial and construction sectors, caused pricing declines over the past three years. Maikis cut the $1.48 2003 earnings per share estimate to $1.32, and cut the $1.67 2004 earnings per share estimate to $1.55.