Market Overview

Best In Class For Trash: Bank Of America Names Waste Connections A Buy

Share:
Best In Class For Trash: Bank Of America Names Waste Connections A Buy
Related WCN
Waste Connections Q2 Earnings Preview
Earnings Scheduled For July 24, 2018

Waste Connections Inc (USA) (NYSE: WCN) managed to win Bank of America Merrill Lynch's approval as being the best-in-class operator, with a high degree of visibility.

The Analyst

BofA analyst Michael Feniger initiated coverage of Waste Connections with a Buy rating and $80 price target.

The Thesis

Waste Connections is the third-largest solid waste company in North America, with sector-leading profitability and free cash flow conversion, Feniger said in a note.

With BofA's Waste indicator remaining firmly positive, thanks to strong housing activity, the firm said it remains bullish on the cycle. Additionally, high-margin exploration and production waste treatment is recovering from the trough.

Feniger also said the industry is seeing a better pricing environment. Waste Connections is likely to deliver 4 percent organic solid waste growth in 2018, helped by price, which could lead to 60 basis-point margin expansion.

Meanwhile, Feniger sees further consolidation in the industry in 2018, as private haulers, accounting for 35 percent of the industry, look to exit the market following the tax reform. The firm expects Waste Connections to use a large chunk of its $600 million cash balance for M&A in the coming months, driving 5-10 percent upside to its EBITDA estimates.

"We forecast 10-15% dividend growth thru 2020e as dividends typically consume 20% of FCF," the firm said.

On the valuation, Feniger said the stock's valuation is elevated, but it warrants a premium to peers, based on its proven track record of creating shareholder value, ability to expand margins, and multi-year runway for growth.

Price Action

Shares of Waste Connections are up over 35 percent in the year-to-date period.

Related Links:

What A Waste: Advanced Disposal Services Likely Hit Hard By Hurricanes

Class Of 1997: 2 Decades After Their IPOs, Where Are These Companies Now?

Latest Ratings for WCN

DateFirmActionFromTo
Jun 2018BMO CapitalMaintainsOutperformOutperform
May 2018BMO CapitalMaintainsOutperformOutperform
Apr 2018BMO CapitalMaintainsOutperformOutperform

View More Analyst Ratings for WCN
View the Latest Analyst Ratings

Posted-In: Bank of America Merrill Lynch Michael FenigerAnalyst Color Price Target Initiation Analyst Ratings Best of Benzinga

 

Related Articles (WCN)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
NKEOppenheimerUpgrades0.0
SBEvercore ISI GroupUpgrades4.5
PTIRBC CapitalUpgrades0.0
GPSJP MorganDowngrades24.0
GIIIB. Riley FBRUpgrades47.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

What Will Be The Biggest Story For Bitcoin In 2018?

From Apple To Netflix, Tax Reform's Impact On The Titans Of Tech