Waste Connections is a leading player in the North American solid waste industry. It is the third largest non-hazardous solid waste services company in North America.
The company provides collection, transfer, recycling, and disposal of solid waste in secondary markets across North America. It is a leading provider of non-hazardous E&P, waste treatment, recovery and disposal services in a few of the natural resource producing areas in the U.S. It also provides intermodal services for the rail haul movement of cargo and solid waste containers in the Pacific Northwest.
Waste Connections serves customers in 41 states in the U.S. and six provinces across Canada. It is a leading provider of waste services in most of the markets it serves. The company focuses on secondary and rural markets and also niche markets, like E&P waste treatment and disposal services. It operates through six operating segments: Southern (23% of 2018 revenues), Western (21%), Eastern (22%), Canada (15%), Central (14%), and E&P (5%).
Waste Connections owns 279 solid waste collection operations, 113 transfer stations, 56 MSW landfills, 11 E&P waste landfills, 14 non-MSW landfills, 64 recycling operations, four intermodal operations, 22 E&P liquid waste injection wells and 19 E&P waste treatment and oil recovery facilities.
- Opportunity Score: 51
- Ticker: TSE:WCN
- Sector: Industrials
- Industry: Waste Management
- Market Cap: 31.76B
- P/E: 144.50
- Dividend Yield: 0.67%
- Payout Ratio (Earnings): 97.34%
- Canadian Dividend Aristocrat: NO
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 8/10
- Dividend Income Fit: 4/10
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Revenue Growth & Market Exposure
Waste Connections is known for providing cost-effective waste management solutions to its customers. It serves millions of customers, ranging from single or multi-family residences to commercial institutions, industrial locations, and construction sites, across the U.S. and Canada. The company also provides customer tailored collection programs with scheduled pick-ups. Given its extensive two-decade-long experience in waste management, Waste Connections is well positioned to adapt to the evolving needs of its customers. Its revenues consist mainly of fees from customers.
The company constantly engages in finding new and alternative technologies in the waste management area. It has deployed ~$1.6 billion on capital expenditures and acquisitions to grow its business in the last year. Waste Connections has registered a tremendous amount of growth over the period 2016-2018, which is evident by its $6.7 billion worth of acquisitions and FCF/ share growth of 40%. The company is in a good position to benefit from rising awareness on health and managing waste in an efficient manner.
Waste Connections has developed a strong reputation for providing critical services to the society at large. It enjoys an early mover advantage in certain rural basins given the limited availability of third-party-owned waste disposal alternatives. Having disposal facilities in close proximity to the waste stream also provides a key competitive advantage and serves as a strong barrier to entry. The company’s revenues increased at 20% CAGR over the last five years.
Waste Connections entered several new markets in 2018, with potential annual revenues of over $360 million, out of which $200 million will provide rollover contribution for 2019. The company also acquired American Disposal at the end of last year, which is a multi-market collection company having operations in prominent U.S. cities. The company should benefit from all these acquisitions in the near future.
Waste Connections has a history of growing its dividend payout at the rate of 16% CAGR in the last five years. It returned over $210 million to shareholders through dividends and share repurchases in the last year. The company increased its regular quarterly cash dividend by 14.3% in 2018. Waste Connections sports a low annual yield of 0.72% and a reasonable payout ratio of 40%.
Waste Connections’ earnings have grown at an impressive rate of 14.5% CAGR over the last five years. Its strong operating performance and free cash flow generation provide enough flexibility to fund its growth strategy. The company is targeting a double-digit percentage increase in FCF/ share for the full year which paves the way for another likely dividend hike in the double-digit percentage range this year.
The company has a strong acquisition policy in place and it is targeting a part of its growth from strategic acquisitions in the future as well. Waste Connections has completed 20 acquisitions in the last year. Its acquisition of Progressive Waste in June 2016 resulted in the formation of a mega $4 billion enterprise.
The company will also gain from the rollover contribution from acquisitions completed in the prior year. An expert management team also plays a key role in securing additional franchise agreements and municipal contracts through competitive bidding. As a result of Waste Connections’ strong presence in secondary and rural markets, the company is better positioned to improve its market positioning and financial returns when compared to its peers.
The North America MSW services industry is highly competitive. Waste Connections competes with the likes of leading national solid waste companies such as Waste Management, Inc., Republic Services, Inc., and Advanced Disposal Services, Inc. The company also suffers competition from several regional and privately owned companies and independent waste brokers.
North America’s solid waste services industry has witnessed significant consolidation over the past decade. Waste Connections’ strategy to avoid highly competitive, large urban markets and target niche markets, in secondary and rural areas ensures exclusive contracts, better asset positioning, and higher comparative growth potential. It also competes against other intermodal rail services companies, trucking companies and railroads.
Waste Connections’ entry into new markets further strengthens its position for future growth. The company is also anticipating that a part of its future growth will come from strategic acquisitions. Given, the rising demand for prudent waste management practices and Waste Connections’ solid reputation and expertise, shareholders should continue to benefit from double-digit percentage dividends and continuing opportunistic share repurchases.