Back to top

Image: Bigstock

Why Should You Hold on to Waste Connections (WCN) Stock Now?

Read MoreHide Full Article

A prudent investment decision involves buying stocks that have solid prospects and selling those that carry risks. At times, it is rational to hold certain stocks that have enough potential but are weighed down by tough market conditions.

We believe Waste Connections, Inc. (WCN - Free Report) , with a market cap of $35.8 billion and long-term (three-five years) expected earnings per share growth rate of 6.7% is a stock investors should retain in their portfolio.

Shares of the company have gained 6.8% over past six months against 13.8% decline of the industry it belongs to.

What’s Supporting the Rally?

Although many companies across diverse sectors have suspended dividend payouts amid the coronavirus crisis, Waste Connections is one of those few that are sailing through the tough economic time and maintaining dividend payouts. The company paid a regular quarterly cash dividend of 18.5 cents per share on May 19. Waste Connections has a track record of consistent dividend payment. It paid $175.1 million, $152.5 million and $131.9 million in dividends in 2019, 2018 and 2017 respectively.

The company enjoys optimal asset positioning as its disposal sites are at prime locations,  helping it generate higher profitability. Considering the importance of costs associated with the transportation of waste to treatment and disposal sites, having a disposal capacity close to the waste stream offers a competitive advantage. Notably, the company’s operating income increased 17.4% year over year in the first quarter of 2020, with operating margin increasing 110 basis points.

Some Risks

Waste Connections has a debt-laden balance sheet. Total debt at the end of first-quarter 2020 was $5.25 billion, up from $4.44 billion at the end of the prior quarter. The total debt to total capital ratio of 0.44 is higher than the previous quarter’s 0.39. An increase in debt-to-capitalization ratio indicates higher risk of insolvency in challenging times.

Further, the company’s cash and cash equivalent of $1.19 billion at the end of the first quarter was well below this debt level, underscoring that it doesn’t have enough cash to meet this debt burden. The cash level, however, can meet the short-term debt of $54 million.

Zacks Rank & Key Picks

Waste Connections currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks to consider in the broader Zacks Business Services sector are DocuSign (DOCU - Free Report) , SPS Commerce (SPSC - Free Report) and SailPoint Technologies . All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term expected earnings per share (three to five years) growth rate for DocuSign, SPS Commerce and SailPoint are at 46.76%, 15% and 15% respectively.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Waste Connections, Inc. (WCN) - free report >>

SPS Commerce, Inc. (SPSC) - free report >>

DocuSign (DOCU) - free report >>

Published in