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Waste Connections is the third-largest non-hazardous solid waste services company in North America. The company provides collection, transfer, recycling, and disposal of solid waste in secondary markets across North America. It is a leading provider of non-hazardous E&P, waste treatment, recovery, and disposal services in a few of the natural resource producing areas in the U.S.
It also provides intermodal services for the movement of cargo and solid waste containers in the Pacific Northwest as well as non-hazardous oilfield waste treatment, recovery, and disposal services in several basins across the U.S.
Waste Connections serves customers in 43 states in the U.S. and six provinces across Canada. It is a leading provider of waste services in most of the markets it serves. The company focuses on secondary and rural markets and also niche markets, like E&P waste treatment and disposal services.
By service line, Waste Connections derives 40% of its total collections from commercial, followed by 38% from residential and balance from industrial markets. It operates through five operating segments: Southern (25% of 2020 revenues), Eastern (~25%), Western (21%), Central (16%), and Canada (13%).
Waste Connections owns 311 solid waste collection operations, 132 transfer stations, 57 MSW landfills, 12 E&P waste landfills, 13 non-MSW landfills, 68 recycling operations, four intermodal operations, 23 E&P liquid waste injection wells, and 19 E&P waste treatment and oil recovery facilities.
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Investment Data
Revenue Growth & Market Exposure
Waste Connections is known for providing cost-effective waste management solutions to its customers. It serves seven million customers, ranging from single or multi-family residences to commercial institutions, industrial locations, and construction sites, across the U.S. and Canada.
The company also provides customer-tailored collection programs with scheduled pick-ups. Given its extensive two-decade-long experience in waste management, Waste Connections is well-positioned to adapt to the evolving needs of its customers. Its revenues consist mainly of fees from customers. Its assets have also grown to ~$14 billion.
Waste Connections has a mix of ~40% exclusive/franchise markets and ~60% competitive markets, primarily secondary or rural, with a high market share. The company is in a good position to benefit from increasing awareness about health and awareness and managing waste in an efficient manner.
It constantly engages in exploring new and alternative technologies in the waste management area. Waste Connections has developed a strong reputation for providing critical services to society at large. It enjoys an early mover advantage in certain rural basins given the limited availability of third-party-owned waste disposal alternatives.
Having disposal facilities in close proximity to the waste stream also provides a key competitive advantage and serves as a strong barrier to entry. Waste Connections is also deploying technology and AI aggressively for efficient operations. The company’s revenues increased at a 20% CAGR over the last five years.
Waste Connections witnessed improving solid waste trends during the quarter and expects 10% solid waste price and volume growth in Q2. 2020 solid waste volumes showed sequential improvement during the second half of the year. Its E&P revenue, however, declined by 60% YoY. Waste Connections is estimating revenue of $5.8 billion and acquisition rollover of ~$120 million from 2020 deals completed in FY 2021.
Dividends
Waste Connections has a sound track record of double-digit dividend growth since its inception. It has a history of growing its dividend payout at the rate of 16% CAGR in the last five years. It returned over $300 million to shareholders through dividends and share repurchases in the last year. The company last increased its regular quarterly cash dividend by 10%. Waste Connections sports a low annual yield of 0.66% and a high payout ratio of 97%.
Waste Connections’ strong operating performance and free cash flow generation provide enough flexibility to fund its growth strategy. The company has a strong acquisition policy in place and it is targeting a part of its growth from strategic acquisitions in the future as well. It completed 21 acquisitions in 2020.
Robust FCF and low leverage should support continued M&A and a high return of capital. Waste Connections is estimating adjusted EBITDA growth of more than 7% and adjusted FCF growth of over 12% YoY in FY2021.
Waste Connections will also gain from the rollover contribution from acquisitions completed in the earlier years. Out of the ~11 billion deployed in the last five years, the company spent 69% on M&A activities, 8% returned to shareholders, and 23% on CapEx.
An expert management team also plays a key role in securing additional franchise agreements and municipal contracts through competitive bidding. As a result of Waste Connections’ strong presence in secondary and rural markets, the company is better positioned to improve its market positioning and financial returns when compared to its peers.
Competition
The North American MSW services industry is highly competitive. Waste Connections competes with the likes of leading national solid waste companies such as Waste Management, Inc., Republic Services, Inc., and Advanced Disposal Services, Inc.
The company also suffers competition from several regional and privately-owned companies and independent waste brokers in addition. North American solid waste services industry has witnessed significant consolidation over the past decade.
Waste Connections’ strategy to avoid highly competitive, large urban markets and target niche markets, in secondary and rural areas ensures exclusive contracts, better asset positioning, and higher comparative growth potential. It also competes against other intermodal rail services companies, trucking companies, and railroads.
Bottom Line
Waste Connections has a sound track record of 17-consecutive years of positive shareholder returns. Leading adjusted EBITDA margins, free cash flow conversion should support future dividend hikes. Waste Connections’ entry into new markets further strengthens its position for growth.
The company is well-positioned for strategic growth opportunities in an active M&A environment. Shareholders should benefit from the rising demand for prudent waste management practices and Waste Connections’ solid reputation and expertise.
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