Waste Connections' Guidance Looks Increasingly 'Realistic,' Analyst Says In Downgrade

KeyBanc Capital Markets said it "sensed a cautious tone" from Waste Connections Inc WCN on whether the company could outperform 2019 estimates. 

The Analyst

Sean Eastman downgraded Waste Connections from Overweight to Sector Weight 

The Thesis

Waste Connections looks to be on track to achieve $150 million of acquired annual revenue by mid-2019, and this isn't factored into the company's guidance, Eastman said in a Monday downgrade note.

Yet it is also likely that any incremental EBITDA from the acquisitions will be "substantially" offset by recycling headwinds, the analyst said.

Old corrugated container price headwinds could translate to a $25-million year-over-year EBITDA headwind in 2019, he said. 

The Street's consensus EBITDA estimate is around 1.1-percent higher than Waste Connections' 2019 guidance, Eastman said

The Street could shift from expectations for upside versus a traditional conservative guide to a new baseline assumption that management's guidance is "realistic," the analyst said. 

KeyBanc named four catalysts that would prompt it to become constructive on the stock once again:

• A rebound in CPI or signs of a price increase in 2019.
• Signs of incremental deal flow activity in the back half of 2019 given the "comfortable" leverage of 2.4 times and $500 million in cash on the balance sheet. 
• A higher E&P run-rate in the back half of 2019.
• Stabilizing OCC prices.

Price Action

Waste Connections shares were trading down by 1.25 percent at $93.45 at the time of publication Monday. 

Related Links:

Benzinga's Top Upgrades, Downgrades For June 3, 2019

KeyBanc Has 'Greater Confidence' In Waste Management's Leadership Team