Waste Connections is the third largest non-hazardous solid waste service company in North America. The company provides solid waste collection, transfer, recycling and disposal in secondary markets across North America. It is a leading provider of non-hazardous E&P, waste treatment, recovery, and disposal services in some natural resource generation areas in the United States

It also provides intermodal services for the transportation of cargo and waste containers in the Pacific Northwest, as well as services for the treatment, recovery and disposal of non-hazardous oilfield waste in multiple basins in the United States

Waste Connections serves customers in 43 states 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 as well as niche markets such as E&P waste treatment and disposal.

By service line, Waste Connections sources 40% of its total collections from commercial, followed by 38% from residential buildings and the remainder from industrial markets. The company operates in five operating segments: South (25% of 2020 sales), East (~ 25%), West (21%), Central (16%) and Canada (13%).

Waste Connections owns 311 solid waste collection facilities, 132 transfer stations, 57 MSW landfills, 12 E&P landfills, 13 non-MSW landfills, 68 recycling companies, four intermodal operations, 23 E&P injection wells for liquid waste and 19 E. & P-waste treatment and oil waste recovery facilities.

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Investment data

Sales growth and market presence

Waste Connections is known for providing cost effective waste disposal solutions to its customers. The company serves seven million customers, from single and multi-family homes to commercial facilities, industrial locations, and construction sites in the United States and Canada.

The company also offers custom pickup programs with scheduled pickups. With two decades of waste management experience, Waste Connections is well positioned to adapt to the changing needs of its customers. The income consists mainly of fees from customers. The net worth has also grown to ~ $ 14 billion.

Waste Connections has a mix of ~ 40% exclusive / franchise markets and ~ 60% competitive markets, mostly secondary or rural, with a high market share. The company is in a good position to benefit from health awareness and awareness raising, as well as efficient waste management.

It is constantly researching new and alternative technologies in the field of waste management. Waste Connections has built a solid reputation as a critical service provider to society as a whole. Due to the limited availability of third-party waste disposal alternatives, it enjoys an early-stage benefit in certain rural areas.

Disposal facilities in the immediate vicinity of the waste stream also offer a decisive competitive advantage and are a strong entry barrier. Waste Connections also aggressively uses technology and AI to operate efficiently. The company’s sales increased 20% CAGR over the past five years.

Waste Connections saw solid waste trends improve for the quarter and expects solid waste and volume to grow 10% in the second quarter. The volume of solid waste in 2020 improved sequentially in the second half of the year. However, E&P sales were down 60% year-on-year. Waste Connections estimates revenue at $ 5.8 billion and the acquisition rollover of approximately $ 120 million from the transactions completed in fiscal year 2021 in 2020.

Dividends

Waste Connections has seen double-digit dividend growth since its inception. Over the past five years, the company has historically increased its dividend payout by 16% CAGR. Last year dividends and share buybacks returned more than $ 300 million to shareholders. The company recently increased its regular quarterly cash dividend by 10%. Waste Connections has a low annual return of 0.66% and a high payout ratio of 97%.

Waste Connections’ strong operating performance and free cash flow generation provide enough flexibility to fund the growth strategy. The company has a strong acquisition policy and will continue to aim for part of its growth through strategic acquisitions in the future. In 2020, 21 acquisitions were completed.

A robust FCF and low leverage should support continued mergers and acquisitions and a high return on investment. Waste Connections estimates adjusted EBITDA growth of more than 7% and adjusted FCF growth of over 12% year over year in fiscal year 2021.

Waste Connections will also benefit from the rollover contribution from acquisitions completed in previous years. Of the ~ 11 billion deployed over the past five years, the company spent 69% on M&A activity, 8% returned to shareholders, and 23% on CapEx.

A competent management team also plays a key role in securing additional franchise and municipal contracts through tenders. With Waste Connections’ strong presence in the secondary and rural markets, the company is better positioned compared to its peers to improve its market positioning and financial returns.

Historical yield from Waste Connections (WCN)
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competition

The North American MSW service industry is highly competitive. Waste Connections competes with leading national solid waste companies such as Waste Management, Inc., Republic Services, Inc., and Advanced Disposal Services, Inc.

In addition, the company suffers from competition from several regional and private companies as well as independent waste brokers. The North American solid waste service industry has seen significant consolidation over the past decade.

Waste Connections’ strategy of avoiding highly competitive large urban markets and target niche markets in secondary and rural areas ensures exclusive contracts, better asset positioning and higher comparable growth potential. It also competes with other intermodal rail companies, freight forwarders and railways.

Bottom line

Waste Connections has a 17-year track record of positive shareholder returns. Moving free cash flow to leading adjusted EBITDA margins should support future dividend increases. The entry of Waste Connections into new markets further strengthens its growth position.

The company is well positioned for strategic growth opportunities in an active M&A environment. Shareholders should benefit from the growing demand for prudent waste management practices and the solid reputation and expertise of Waste Connections.

WCN against TSX against SP500
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Waste Connections (WCN) historical PE
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