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Waste Connections Focuses on Holistic Growth, Risks Remain
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On Jan 2, we issued an updated research report on waste management service provider Waste Connections, Inc. (WCN - Free Report) .
With disposal sites at prime locations, Waste Connections has optimal asset positioning to generate higher profitability. Given the importance of and costs associated with the transportation of waste to treatment and disposal sites, having disposal capacity proximate to the waste stream offer a competitive advantage and serve as a barrier to entry. An experienced management team, decentralized operating strategy and financial strength are additional tailwinds. Moreover, the merger with rival — Progressive Waste Solutions Ltd — has created an industry leader with enhanced scale and a stronger financial profile. With complementary footprint, the combined company has pro forma revenues of approximately $4.1 billion and operates an integrated network of solid waste operations across North America. The combined company has benefited from a diverse revenue base and has strategic assets uniquely positioned for continued growth.
Waste Connections generally focuses on providing vertically integrated services, from collection through disposal of solid waste in landfills that it owns or operates. In addition, the operations are managed on a decentralized basis to place decision-making authority close to the customer, enabling it to identify and address customers’ needs on a real-time basis in a cost-effective manner. This low-overhead, highly-efficient operational structure allows it to expand into geographically contiguous markets and operate in relatively small communities that other competitors may not find attractive.
Moreover, 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, revenues per routed truck grows, which in turn, increases collection efficiencies and profitability.
However, Waste Connections’ revenues are 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.
Waste Connections has also underperformed the industry with an average return of 0.6% in the last three months compared with a gain of 3.2% for the latter.
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 hurt the profitability of the company and compress its margins.
NV5 Global has a long-term earnings growth expectation of 20%. It topped earnings estimates thrice in the trailing four quarters with a positive surprise of 4.5%.
Heidrick & Struggles International has a long-term earnings growth expectation of 15%.
Kforce has an average positive earnings surprise of 2% in the trailing four quarters.
Zacks Editor-in-Chief Goes "All In" on This Stock
Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.
Image: Bigstock
Waste Connections Focuses on Holistic Growth, Risks Remain
On Jan 2, we issued an updated research report on waste management service provider Waste Connections, Inc. (WCN - Free Report) .
With disposal sites at prime locations, Waste Connections has optimal asset positioning to generate higher profitability. Given the importance of and costs associated with the transportation of waste to treatment and disposal sites, having disposal capacity proximate to the waste stream offer a competitive advantage and serve as a barrier to entry. An experienced management team, decentralized operating strategy and financial strength are additional tailwinds. Moreover, the merger with rival — Progressive Waste Solutions Ltd — has created an industry leader with enhanced scale and a stronger financial profile. With complementary footprint, the combined company has pro forma revenues of approximately $4.1 billion and operates an integrated network of solid waste operations across North America. The combined company has benefited from a diverse revenue base and has strategic assets uniquely positioned for continued growth.
Waste Connections generally focuses on providing vertically integrated services, from collection through disposal of solid waste in landfills that it owns or operates. In addition, the operations are managed on a decentralized basis to place decision-making authority close to the customer, enabling it to identify and address customers’ needs on a real-time basis in a cost-effective manner. This low-overhead, highly-efficient operational structure allows it to expand into geographically contiguous markets and operate in relatively small communities that other competitors may not find attractive.
Moreover, 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, revenues per routed truck grows, which in turn, increases collection efficiencies and profitability.
However, Waste Connections’ revenues are 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.
Waste Connections has also underperformed the industry with an average return of 0.6% in the last three months compared with a gain of 3.2% for the latter.
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 hurt the profitability of the company and compress its margins.
Nevertheless, we remain impressed with the inherent growth prospects of this Zacks Rank #3 (Hold) stock. Better-ranked stocks in the industry include NV5 Global, Inc. (NVEE - Free Report) , Heidrick & Struggles International, Inc. (HSII - Free Report) and Kforce Inc. (KFRC - 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.
NV5 Global has a long-term earnings growth expectation of 20%. It topped earnings estimates thrice in the trailing four quarters with a positive surprise of 4.5%.
Heidrick & Struggles International has a long-term earnings growth expectation of 15%.
Kforce has an average positive earnings surprise of 2% in the trailing four quarters.
Zacks Editor-in-Chief Goes "All In" on This Stock
Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.
Download it free >>