On Sep 4, we issued an updated the research report on Waste Connections, Inc. WCN.
Driving Factors
Waste Connections is an integrated solid waste services company that provides waste collection, transfer, disposal and recycling services across the United States and Canada. The company has outperformed the industry with an average year-to-date return of 27.3% compared with 10.7% gain for the latter. It 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.
With prime location of disposal sites within competitive markets, 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 remain additional tailwinds.
Headwinds
Volatility in crude oil prices is expected to impair the profitability and creditworthiness of Waste Connections and adversely affect the level of investment and linear feet drilled in the basins where it operates. It may further impact the ability of E&P companies to access capital on economically advantageous terms. This, in turn, is likely to reduce the demand for its services, thereby affecting both its top line and bottom line.
Over the years, stringent environmental, health and safety laws and regulations have 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. The barriers to entry into the regulated waste collection and disposal business are also very low. Competitors often resort to aggressive pricing to gain higher market share. This capital-intensive industry further includes larger and better capitalized companies, which affect its ability to invest in substantial labor and capital resources. All these factors erode the profitability of the company and compress its margins.
Zacks Rank and Stocks to Consider
Waste Connections currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector are PFSweb, Inc. PFSW, PRGX Global, Inc. PRGX and Viad Corp VVI, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
PFSweb is currently trading at a forward P/E of 19.7x.
PRGX Global is currently trading at a forward P/E of 71.1x.
Viad is currently trading at a forward P/E of 20.6x.
Zacks' 10-Minute Stock-Picking Secret
Since 1988, the Zacks system has more than doubled the S&P 500 with an average gain of +25% per year. With compounding, rebalancing, and exclusive of fees, it can turn thousands into millions of dollars.
But here's something even more remarkable: You can master this proven system without going to a single class or seminar. And then you can apply it to your portfolio in as little as 10 minutes a month.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment