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Waste Connections Well Poised for Solid Inorganic Growth
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On Dec 5, Zacks Investment Research updated the research report on waste management service provider Waste Connections, Inc. (WCN - Free Report) . This Zacks Rank #3 (Hold) stock had a dream run this year as it outperformed the Zacks categorized Waste Removal Services industry with an average year-to-date return of 55.4% compared with 14.7% for the latter.
In addition, with long-term earnings growth expectation of 21.3%, the stock looks poised for a steady uptrend. Earnings estimates for 2016 increased from $2.42 to $2.51 per share in the last 60 days, signifying positive investor confidence.
Waste Connections and rival Progressive Waste Solutions Ltd merged in Jun 2016 to create an industry leader with enhanced scale and a stronger financial profile. With complementary footprints, the combined company has pro forma revenue of approximately $4.1 billion. It operates an integrated network of solid waste operations across North America.
The combined company will benefit from a diverse revenue base and has strategic assets uniquely positioned for continued growth. In addition, it is expected to generate approximately $50 million in annualized SG&A cost savings within the first 12 months of closing, with operational and safety-related improvements and market rationalization contributing additional upside over the long term.
Waste Connections typically targets secondary and rural markets to garner a higher local market share, which would be difficult to attain in more competitive urban markets. In certain niche markets, like E&P waste treatment and disposal, early mover advantage in certain rural basins play a key role in improving market positioning and generating higher financial returns, given the limited availability of existing third-party-owned waste disposal alternatives. The company focuses on increasing market penetration and offering additional services to capitalize on future drilling opportunities in those areas. Waste Connections also aims to leverage its franchise-based platforms to expand customer base beyond the exclusive market territories. As customers are added in existing markets, revenue per routed truck increases, which in turn increases collection efficiencies and profitability.
However, Waste Connections’ revenue is highly seasonal due to lower volume of solid waste generated during winter and early spring owing to comparatively lesser construction and demolition activities and reduced E&P activity. Severe cold weather conditions further slow down waste collection activities, resulting in higher labor and operational costs. The seasonality is attributable to lower drilling programs and lower volumes of E&P waste during mild winter conditions.
Over the years, stringent environmental, health and safety laws and regulations have also severely hindered operations and increased operating costs of the company. In addition, the industry is subject to regular enactment of new or amended federal, state and local statutes and regulations that further impose substantial capital and operational limitations. All these factors erode the profitability of the company and compress its margins.
Waste Management has a long-term earnings growth expectation of 9.8% and has beaten estimates in all the trailing four quarters for an average earnings surprise of 4.8%.
CRA International has a long-term earnings growth expectation of 8% and has beaten estimates thrice in the trailing four quarters for an average negative earnings surprise of 3%.
Exponent has long-term earnings growth expectation of 12% and has beaten estimates thrice in the trailing four quarters for an average positive earnings surprise of 9.7%.
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Waste Connections Well Poised for Solid Inorganic Growth
On Dec 5, Zacks Investment Research updated the research report on waste management service provider Waste Connections, Inc. (WCN - Free Report) . This Zacks Rank #3 (Hold) stock had a dream run this year as it outperformed the Zacks categorized Waste Removal Services industry with an average year-to-date return of 55.4% compared with 14.7% for the latter.
In addition, with long-term earnings growth expectation of 21.3%, the stock looks poised for a steady uptrend. Earnings estimates for 2016 increased from $2.42 to $2.51 per share in the last 60 days, signifying positive investor confidence.
Waste Connections and rival Progressive Waste Solutions Ltd merged in Jun 2016 to create an industry leader with enhanced scale and a stronger financial profile. With complementary footprints, the combined company has pro forma revenue of approximately $4.1 billion. It operates an integrated network of solid waste operations across North America.
The combined company will benefit from a diverse revenue base and has strategic assets uniquely positioned for continued growth. In addition, it is expected to generate approximately $50 million in annualized SG&A cost savings within the first 12 months of closing, with operational and safety-related improvements and market rationalization contributing additional upside over the long term.
Waste Connections typically targets secondary and rural markets to garner a higher local market share, which would be difficult to attain in more competitive urban markets. In certain niche markets, like E&P waste treatment and disposal, early mover advantage in certain rural basins play a key role in improving market positioning and generating higher financial returns, given the limited availability of existing third-party-owned waste disposal alternatives. The company focuses on increasing market penetration and offering additional services to capitalize on future drilling opportunities in those areas. Waste Connections also aims to leverage its franchise-based platforms to expand customer base beyond the exclusive market territories. As customers are added in existing markets, revenue per routed truck increases, which in turn increases collection efficiencies and profitability.
However, Waste Connections’ revenue is highly seasonal due to lower volume of solid waste generated during winter and early spring owing to comparatively lesser construction and demolition activities and reduced E&P activity. Severe cold weather conditions further slow down waste collection activities, resulting in higher labor and operational costs. The seasonality is attributable to lower drilling programs and lower volumes of E&P waste during mild winter conditions.
Over the years, stringent environmental, health and safety laws and regulations have also severely hindered operations and increased operating costs of the company. In addition, the industry is subject to regular enactment of new or amended federal, state and local statutes and regulations that further impose substantial capital and operational limitations. All these factors erode the profitability of the company and compress its margins.
Nevertheless, we expect Waste Connections to continue outperforming the industry with solid fundamentals. Some better-ranked stocks in the industry include Waste Management, Inc. (WM - Free Report) , CRA International, Inc. (CRAI - Free Report) and Exponent, Inc. (EXPO - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Waste Management has a long-term earnings growth expectation of 9.8% and has beaten estimates in all the trailing four quarters for an average earnings surprise of 4.8%.
CRA International has a long-term earnings growth expectation of 8% and has beaten estimates thrice in the trailing four quarters for an average negative earnings surprise of 3%.
Exponent has long-term earnings growth expectation of 12% and has beaten estimates thrice in the trailing four quarters for an average positive earnings surprise of 9.7%.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>