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3 Promising Waste Management Industry Stocks to Watch Out For

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The Zacks Waste Removal Services  industry stands to benefit from the current scenario as proper disposal of medical waste remains the utmost priority for several countries across the globe amid the new surge in coronavirus cases. Government initiatives for sustainable waste management, increasing environmental awareness, rising population, rapid industrialization and urbanization, and growing adoption of advanced waste collection solutions are the other positives.

Republic Services, Inc. (RSG - Free Report) , Core & Main, Inc. (CNM - Free Report) and Montrose Environmental Group, Inc. (MEG - Free Report) are some stocks likely to gain from the abovementioned factors.

Industry Description

The Zacks Waste Removal Services industry comprises companies engaged in the collection, transportation, treatment, disposal, inspection and regulation of any form of waste. The companies serve residential, municipal, commercial and industrial customers in the United States and internationally. Some industry participants provide non-hazardous solid waste collection, transfer, recycling, disposal, and energy services for small-container, large-container, municipal and residential, and energy services customers in the United States and Puerto Rico, while others provide waste management environmental services to residential, commercial, industrial, and municipal customers in North America. Some industry players operate as an environmental infrastructure and solutions company, providing water handling and recycling solutions.

What's Shaping the Future of Waste Removal Services Industry?

A Healthy Demand Environment: The industry is mature, with growth coming from volume and price increases. Income and cash flow have grown steadily over the past few years, enabling most industry players to pursue acquisitions and other investments. Per a report, the global waste management market is expected to reach $2,483.0 billion by 2030 from $1,612.0 billion in 2020, witnessing a CAGR of 3.4% from 2021 to 2030.

Medical Waste Disposal Boosts Industry Prospects: The coronavirus outbreak has necessitated the proper disposal of trash. In fact, waste management companies are at an advantage in situations such as this, as healthcare officials have to dispose of used masks, gloves, suits, syringes and other medical equipment properly to curb the spread of infection. Government initiatives as well as stringent rules and regulations to advance sustainable waste management mechanisms and put a check on illegal dumping are also expected to boost the industry.

Rise in Non-hazardous Waste: Increase in population, industrialization and urbanization should remain the key drivers of the industry as it leads to a significant rise in garbage and recycling. Also, technological adoption, and the use of advanced collection and recycling solutions are expected to pick up pace. This should enhance business opportunities for waste management companies.

Zacks Industry Rank Indicates Encouraging Prospects

The Zacks Waste Removal Services industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #105. This rank places it in the top 42% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates strong near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Before we present a few stocks that investors can buy given their growth prospects, let’s take a look at the industry’s recent stock market performance and current valuation.

Industry's Performance

The Zacks Waste Removal Services industry has outperformed the broader Zacks Business Services sector but has underperformed the Zacks S&P 500 composite over the past year.

The industry has declined 2.1% over this period against 24.8% decline of the broader sector. The Zacks S&P 500 composite has risen 28.6% in the said time frame.

One-Year Price Performance

Industry's Current Valuation

On the basis of EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization), which is commonly used for valuing waste removal services stocks because of their high debt levels, the industry is currently trading at 12.51X compared with the S&P 500’s 16.19X and the sector’s 17.29X.

Over the past five years, the industry has traded as high as 12.82X, as low as 8.42X and at the median of 11.39X, as the charts below show.

EV/EBITDA Ratio

3 Waste Removal Services Stocks to Keep a Close Eye On

Core & Main: This Zacks Rank #1 (Strong Buy) Missouri-based company distributes water, wastewater, storm drainage, and fire protection products and related services to municipalities, private water companies, and professional contractors in the municipal, non-residential, and residential end markets in the United States.You can see the complete list of today’s Zacks #1 Rank stocks here.

Core & Main has been benefiting from solid demand across each of its end markets, backed by continued growth in municipal water infrastructure spending, growth in land and development due to continued housing demand, and recovery in the non-residential construction market. Despite the ongoing inflationary trends across many of its product lines due to supply chain constraints and product availability challenges, the company kept floating through its reliable products and services. The company’s active M&A strategy has been helping it expand into new geographies, access new product lines, consolidate existing market positions and add key talent. In addition, higher net sales and cost-control initiatives will likely drive margins.

The Zacks Consensus Estimate for Core & Main’s 2022 EPS has moved up 22.9% in the past 90 days. Core & Main’s shares have appreciated 29.8% over the past year.

Price & Consensus: CNM

Republic Services: This Arizona-based Zacks Rank #2 (Buy) company provides non-hazardous solid waste collection, transfer, disposal, recycling, and environmental services in the United States.

The positive impact of acquisitions and average yield has been aiding Republic Services’ top-line growth. The company is focused on increasing its operational efficiency by shifting to compressed natural gas collection vehicles and converting rear-loading trucks to automated-side loaders to reduce costs and improve profitability. Republic Services continues to grow internally with the help of long-term contracts for the collection, recycling and disposal of solid waste materials. Consistency in dividend payments and share buybacks not only boost investor confidence but also drive earnings per share.

Further, the company’s raised full-year 2021 guidance indicates that it has solid growth potential. It now expects adjusted EPS between $4.10 and $4.13 compared with the prior guidance of $4.00 and $4.05. The company now expects to generate $1.475 billion to $1.5 billion of adjusted free cash flow compared with the prior guidance of $1.45 billion to $1.475 billion.

The Zacks Consensus Estimate for Republic Services’ 2022 EPS has moved up 3.2% in the past 90 days. Republic Services’ shares have appreciated 44% over the past year.

Price & Consensus: RSG

Montrose Environmental Group: This Zacks Rank #2 California-basedcompany operates as an environmental services company in the United States.

Montrose’s top line has been benefiting fromorganic growth in its Assessment, Permitting and Response and Remediation and Reuse segments. It is also gaining from acquisitions like that of MSE Group, LLC in January 2021, Vista Analytical Laboratory, Inc. in June 2021, and Environmental Intelligence, LLC in July 2021. The company recently completed its two financially accretive transactions — Environmental Chemistry, Inc. in October 2021 and Horizon Water and Environment, LLC in November 2021. Montrose’s acquisition strategy helps it expand its capabilities and expand its footprint.

The Zacks Consensus Estimate for Montrose’s 2022 EPS has moved up more than 100% in the past 90 days. Montrose’s shares have appreciated 125.3% over the past year.

Price & Consensus: MEG



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