Casella Waste Systems Could See 15% Upside In Stifel's View

Casella Waste Systems Inc. CWST is poised to ride on the momentum offered by better organic growth as well as deal growth.

The Analyst

Stifel analyst Michael Hoffman upgraded shares of Casella Waste from Hold to Buy, and increased his price target from $22 to $28.

The positive analyst actions come following Stifel's travel along with Casella Waste's management on its investor visit on Jan. 23.

The Thesis

Casella Waster can suggest 3-4 percent organic growth, including the headwind of Southbridge closure, Hoffman said in a note, quoting the company. The outlook is based on a reported price trend of 2.5-3.5 percent in collection and 3.5 percent for landfill, the analyst added.

Hoffman said without the benefit of improved asset utilization from tuck-in acquisitions, the company can at best be at the low-end of the peer group cash conversion as a percent of sales of 8-9 percent. However, the number could go up to 10 percent of sales with operating leverage of improved route density and landfill internalization from deals, the analyst said.

If the company adds $30 million per year in deal growth, supporting its 4 percent organic growth, the firm said it would lead to 25-35 basis points annual margin expansion and low-double-digit free cash flow.

Such a scenario would support the upgrade and revised price target, the firm said.

The Price Action

Shares of Casella Waste are up over 115.6 percent over the past year, including a strong jump on Wednesday.

At time of writing, shares were rallying 4.7 percent to $25.41.

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