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Waste Connections (WCN) Gains From Buyouts Amid Low Liquidity
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Waste Connections Inc. (WCN - Free Report) focuses on rural markets for higher local market shares, with a strategic approach to acquisitions. Notable acquisitions contribute to revenues, while shareholder rewards include dividends and share repurchases. Operational risks, liquidity concerns and seasonality pose challenges, emphasizing the need for prudent management.
Waste Connections reported solid third-quarter 2023 results, wherein both earnings and revenues surpassed the respective Zacks Consensus Estimates.
The better-than-expected results seem to have impressed the investors as the shares increased 1.6% post the earnings release on Oct 25.
Adjusted earnings (excluding 21 cents from non-recurring items) of $1.17 per share beat the Zacks Consensus Estimate by 2.6% and increased 6.4% year over year. Revenues of $2.06 billion topped the consensus estimate by 0.2% and rose 9.8% year over year.
Factors in Favor
Waste Connections typically targets secondary and rural markets to achieve higher local market shares, minimizing exposure to customer churn and enhancing financial returns, especially in niche markets like E&P waste treatment and disposal. The company capitalizes on early mover advantages in rural basins with limited third-party waste disposal alternatives. It aims to expand market penetration and offer additional services in these areas, expecting 2023 revenues from E&P Waste Treatment, Recovery and Disposal to be $226.2 million, indicating a 7.4% increase from the previous year.
Waste Connections actively pursues acquisitions, employing a strategic evaluation approach based on financial, market and management criteria. It uses acquired operations as a base to strengthen its presence in new markets through additional services, customer additions, and "tuck-in" acquisitions of other waste companies. Notable acquisitions in recent years include American Disposal Services, Groot Industries and Progressive Waste. In 2022, 2021 and 2020, the company successfully completed 24, 30 and 21 acquisitions, respectively, contributing significantly to revenues.
Consistently rewarding shareholders, Waste Connections paid dividends and repurchased shares in 2022, 2021 and 2020, demonstrating its commitment to shareholder value creation and confidence in its business. In 2022, dividends and share repurchases amounted to $243 million and $425 million, respectively. Similarly, in 2021, it paid $220.2 million in dividends and repurchased shares worth $339 million. In 2020, dividends and share repurchases totaled $199.9 million and $105.7 million, respectively.
Some Risks
Waste Connections' current ratio (a measure of liquidity) at the end of third-quarter 2023 was pegged at 0.73, lower than the current ratio of 0.89 reported at the end of the year-ago quarter. A decline in the current ratio is not desirable as it indicates that the company may have problems meeting its short-term debt obligations.
Waste Connections, in providing environmental and waste management services, faces various operational risks, including truck accidents, equipment defects and malfunctions. Managing fueling stations and landfill gas systems introduces additional risks of fire and explosions. Furthermore, the company's operations in Canada expose it to uncertainties related to foreign currency exchange rate fluctuations and the impact of monetary devaluation.
Waste Connections experiences significant seasonality in revenues, with the first quarter being the lowest and the second and third quarters showing an increase. However, fourth-quarter revenues are lower than the preceding two quarters, resulting in a 12% fluctuation due to seasonal factors. This pattern is driven by reduced construction and demolition activities, lower E&P activity and adverse weather conditions in winter and early spring. These seasonal variations pose challenges in revenue predictability and increase operational risks for the company.
Other Industry Players
Investors interested in the broader Business Services sector can consider the following stocks:
Adjusted earnings (excluding 30 cents from non-recurring items) per share of $2.56 beat the Zacks Consensus Estimate by 37.6% and increased 6.2% from the year-ago reported figure. Revenues of $1.4 billion beat the consensus estimate by 0.7% and improved 5.8% year over year on a reported basis and 4.9% on a foreign-currency-neutral basis.
Total contract value was $4.7 billion, up 8.1% year over year on a foreign-currency-neutral basis.
Fiserv, Inc. (FI - Free Report) reported impressive third-quarter 2023 results, wherein earnings and revenues surpassed the Zacks Consensus Estimate.
Adjusted earnings per share (excluding 40 cents from non-recurring items) of $1.96 exceeded the consensus mark by 1% and increased 20% year over year. Adjusted revenues of $4.62 billion surpassed the consensus estimate by 0.53% and rose 8.2% year over year.
Organic revenue growth was 12% in the quarter, driven by 20% and 6% growth in the Acceptance and Payments segments, respectively.
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Waste Connections (WCN) Gains From Buyouts Amid Low Liquidity
Waste Connections Inc. (WCN - Free Report) focuses on rural markets for higher local market shares, with a strategic approach to acquisitions. Notable acquisitions contribute to revenues, while shareholder rewards include dividends and share repurchases. Operational risks, liquidity concerns and seasonality pose challenges, emphasizing the need for prudent management.
Waste Connections reported solid third-quarter 2023 results, wherein both earnings and revenues surpassed the respective Zacks Consensus Estimates.
The better-than-expected results seem to have impressed the investors as the shares increased 1.6% post the earnings release on Oct 25.
Adjusted earnings (excluding 21 cents from non-recurring items) of $1.17 per share beat the Zacks Consensus Estimate by 2.6% and increased 6.4% year over year. Revenues of $2.06 billion topped the consensus estimate by 0.2% and rose 9.8% year over year.
Factors in Favor
Waste Connections typically targets secondary and rural markets to achieve higher local market shares, minimizing exposure to customer churn and enhancing financial returns, especially in niche markets like E&P waste treatment and disposal. The company capitalizes on early mover advantages in rural basins with limited third-party waste disposal alternatives. It aims to expand market penetration and offer additional services in these areas, expecting 2023 revenues from E&P Waste Treatment, Recovery and Disposal to be $226.2 million, indicating a 7.4% increase from the previous year.
Waste Connections actively pursues acquisitions, employing a strategic evaluation approach based on financial, market and management criteria. It uses acquired operations as a base to strengthen its presence in new markets through additional services, customer additions, and "tuck-in" acquisitions of other waste companies. Notable acquisitions in recent years include American Disposal Services, Groot Industries and Progressive Waste. In 2022, 2021 and 2020, the company successfully completed 24, 30 and 21 acquisitions, respectively, contributing significantly to revenues.
Consistently rewarding shareholders, Waste Connections paid dividends and repurchased shares in 2022, 2021 and 2020, demonstrating its commitment to shareholder value creation and confidence in its business. In 2022, dividends and share repurchases amounted to $243 million and $425 million, respectively. Similarly, in 2021, it paid $220.2 million in dividends and repurchased shares worth $339 million. In 2020, dividends and share repurchases totaled $199.9 million and $105.7 million, respectively.
Some Risks
Waste Connections' current ratio (a measure of liquidity) at the end of third-quarter 2023 was pegged at 0.73, lower than the current ratio of 0.89 reported at the end of the year-ago quarter. A decline in the current ratio is not desirable as it indicates that the company may have problems meeting its short-term debt obligations.
Waste Connections, in providing environmental and waste management services, faces various operational risks, including truck accidents, equipment defects and malfunctions. Managing fueling stations and landfill gas systems introduces additional risks of fire and explosions. Furthermore, the company's operations in Canada expose it to uncertainties related to foreign currency exchange rate fluctuations and the impact of monetary devaluation.
Waste Connections experiences significant seasonality in revenues, with the first quarter being the lowest and the second and third quarters showing an increase. However, fourth-quarter revenues are lower than the preceding two quarters, resulting in a 12% fluctuation due to seasonal factors. This pattern is driven by reduced construction and demolition activities, lower E&P activity and adverse weather conditions in winter and early spring. These seasonal variations pose challenges in revenue predictability and increase operational risks for the company.
Other Industry Players
Investors interested in the broader Business Services sector can consider the following stocks:
Gartner, Inc. (IT - Free Report) reported better-than-expected third-quarter 2023 results.
Adjusted earnings (excluding 30 cents from non-recurring items) per share of $2.56 beat the Zacks Consensus Estimate by 37.6% and increased 6.2% from the year-ago reported figure. Revenues of $1.4 billion beat the consensus estimate by 0.7% and improved 5.8% year over year on a reported basis and 4.9% on a foreign-currency-neutral basis.
Total contract value was $4.7 billion, up 8.1% year over year on a foreign-currency-neutral basis.
Fiserv, Inc. (FI - Free Report) reported impressive third-quarter 2023 results, wherein earnings and revenues surpassed the Zacks Consensus Estimate.
Adjusted earnings per share (excluding 40 cents from non-recurring items) of $1.96 exceeded the consensus mark by 1% and increased 20% year over year. Adjusted revenues of $4.62 billion surpassed the consensus estimate by 0.53% and rose 8.2% year over year.
Organic revenue growth was 12% in the quarter, driven by 20% and 6% growth in the Acceptance and Payments segments, respectively.