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

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
May 2020Deutsche BankMaintainsBuy
May 2020RBC CapitalMaintainsOutperform
May 2020Raymond JamesReiteratesStrong Buy

View More Analyst Ratings for WCN
View the Latest Analyst Ratings

 

Related Articles (WCN)

View Comments and Join the Discussion!

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

Latest Ratings

StockFirmActionPT
WORKPiper SandlerMaintains40.0
TDOCPiper SandlerMaintains220.0
SPWHPiper SandlerMaintains15.0
NTBPiper SandlerMaintains30.0
MDBPiper SandlerMaintains226.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com