Waste Connections (WCN) Well Poised For Long-Term Growth

On Jun 23, Zacks Investment Research initiated the research report on waste management services provider Waste Connections Inc. (NYSE:WCN) .

Headquartered in The Woodlands, TX, Waste Connections is an integrated solid waste services firm that provides waste collection, transfer, disposal and recycling services across the U.S. and Canada. The company also offers non-hazardous oilfield waste treatment, recovery and disposal services in various active natural resource producing areas in the country through its R360 Environmental Solutions subsidiary.

The Upside

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 the disposal capacity proximate to the waste stream offers a competitive advantage and serve as a barrier to entry. An experienced management team, decentralized operating strategy and financial strength remain additional tailwinds.

Waste Connections merged with rival Progressive Waste Solutions Ltd early this month to create an industry leader with enhanced scale and a stronger financial profile. With complementary footprints, the combined company will benefit from a diverse revenue base and will have strategic assets uniquely positioned for continued growth. In addition, the merger is expected to generate approximately $50 million in annualized SG&A cost savings within the first 12 months after closing. Besides, the operational & safety-related improvements and market rationalization are expected to contribute an additional upside over the long-term.

In addition, Waste Connections generally focuses on providing vertically integrated services, from collection through disposal of solid waste in landfills that it owns or operates. 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. This 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 Headwinds

The continued 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. Lower crude oil prices and high volatility 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 the top and bottom lines.

Over the years, stringent environmental, health and safety laws & regulations have severely hindered operations and increased operating costs of the company. In addition, the seasonality factor further lowers predictably in revenue generation and increases operating risks. A highly competitive marketplace with low barriers to entry remains an additional headwind for the company.

Moving Forward

Despite the challenges, Waste Connections remains poised for healthy long-term growth buoyed by the merger with Progressive Waste. The merger is likely to yield additional upside over the long-term with synergistic benefits and operational savings.

We remain impressed with the growth potential of this Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the Industrial Goods sector include Nuverra Environmental Solutions, Inc. (OTC:NESC) , US Ecology, Inc. (NASDAQ:ECOL) and Ingersoll-Rand Plc (NYSE:IR) , each carrying a Zacks Rank #2 (Buy).

INGERSOLL RAND (IR): Free Stock Analysis Report

WASTE CONNECTN (WCN): Free Stock Analysis Report

US ECOLOGY INC (ECOL): Free Stock Analysis Report

NUVERRA ENV SOL (NESC): Free Stock Analysis Report

Original post

Zacks Investment Research