Here's Why You Should Hold Waste Connections (WCN) Stock Now

Waste Connections Inc. (NYSE:WCN) is benefiting from acquisitions, which is helping the company increase its top line and expand geographical presence.

So far this year, shares of the company have gained 9.4% compared with 2.3% growth of the industry it belongs to.

It has an expected long-term earnings per share growth rate of 11.7%. Moreover, its earnings are expected to register 16.2% growth in 2018 and 13.6% in 2019.

However, the company faces its share of headwinds. A debt-laden balance sheet may limit Waste Connections’ future expansion and worsen its risk profile. The company’s revenues are highly seasonal in nature with expected fluctuation of 10% between the highest and lowest revenue quarters. Despite these headwinds, we believe that the company has enough positives, which justify its retention in investors’ portfolio.

Factors Driving Waste Connections’ Performance

Waste Connections continues to grow its top line and expand its geographical presence, with the help of acquisitions in both new and existing markets. Recently, it has acquired American Disposal Services, Inc. and certain affiliates, which is expected to provide new market opportunities in Georgia, Virginia and Denver.

In the first nine months of 2018, the company completed the purchase of 15 individually immaterial non-hazardous solid waste collection, recycling, transfer and disposal businesses. The company expects to generate total annualized acquired revenues of nearly $360 million in 2018 through its growth-by-acquisition policy. For 2019, the company expects 8-10% revenue growth and witness margin expansion, backed by contributions from these acquisitions and price-led organic growth.

Waste Connection’s low-overhead, highly-efficient operational structure allows it to expand into geographically contiguous markets and operate in relatively small communities that other competitors may not find attractive. The companyfocuses on providing vertically integrated services, from collection through disposal of solid waste in landfills that it owns or operates. In addition, the operations are managed on a decentralized basis to place decision-making authority close to the customer, enabling it to identify and address customers’ needs on a real-time basis in a cost-effective manner.

Further, the company’s focus on secondary and rural markets to garner a higher local market share, which is difficult to attain in more competitive urban markets, is appreciable. This decreases its exposure to customer churn and helps improve financial returns.

With prime location of disposal sites within competitive markets, Waste Connections enjoys optimal asset positioning that helps it generate higher profitability. Considering the importance of costs associated with the transportation of waste to treatment and disposal sites, having disposal capacity close to the waste stream offers a competitive advantage.

Zacks Rank & Stocks to Consider

Currently, Waste Connections is a Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the broader Zacks Business Services sector are Interpublic (NYSE:IPG) , Automatic Data Processing (NASDAQ:ADP) and Navigant Consulting (NYSE:NCI) , each carrying a Zacks Rank #2 (Buy). Long-term expected EPS (three to five years) growth rate for Interpublic, Automatic Data Processing and Navigant is 7.5%, 12.5% and 13.5%, respectively.

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