Skip to main content
analysis

On today’s TSX Breakouts report, there are 35 stocks on the positive breakouts list (stocks with positive price momentum), of which 27 are energy stocks, and 48 securities are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that is on the cusp of appearing on the positive breakouts list - Waste Connections Inc. (WCN-T). After the market closed on Wednesday, the company reported solid third-quarter earnings results that beat the Street’s expectations. On Thursday, the share price jumped 7 per cent on high volume with the share price now less than 2 per cent away from closing at a record high.

A brief outline on Waste Connections is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.

The company

Waste Connections’ core business offers solid waste collection, solid waste disposal and transfer, and solid waste recycling services with operations across North America. The company has operations in 43 U.S. states and six Canadian provinces.

In terms of geographical revenue breakdown, in 2021, 86 per cent of total revenue stemmed from the U.S. and 14 per cent from Canada.

There is seasonality in the company’s revenues. Historically, revenues are lowest in the winter months, or first quarter.

The stock is dual-listed trading on both the Toronto Stock Exchange and the New York Stock Exchange under the same ticker, WCN.

Investment thesis

  • Industry leader. North America’s third-largest solid waste company.
  • Strong leadership.
  • Double-digit revenue growth. Management is guiding to double-digit revenue growth in 2023 and anticipates over 16 per cent top line growth in 2022. Last year, the company’s revenue increased 13 per cent year-over-year.
  • Pricing power. Ability to put through price increases.
  • Acquisition growth. The company completed 30 acquisitions in 2021, 21 in 2020 and 21 in 2019.
  • Healthy balance sheet.
  • Solid price returns. Year-to-date, the share price is up 10 per cent. Looking back, the share price rallied 32 per cent in 2021, 11 per cent in 2020, 16 per cent in 2019, 14 per cent in 2018, 27 per cent in 2017 and 56 per cent in 2016.
  • Potential key risks to consider: 1) valuation - the stock trades at an elevated multiple; 2) inflation; and 3) risk of a recession.

Quarterly earnings and outlook

After the market closed on Nov. 2, the company reported better-than-expected third-quarter earnings results driven by strong pricing and higher exploration and production (E&P) from energy companies waste activity.

Revenue came in at US$1.88-billion, up 17.7 per cent year-over-year. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was US$588-million, ahead of the consensus estimate of US$584-million and up 16 per cent year-over-year. Adjusted EBITDA margin came in at 31.3 per cent. The company realized solid waste price increases of 10.1 per cent. Adjusted earnings per share came in at US$1.10, nine cents above the Street’s expectations. At quarter-end, net debt-to-EBITDA stood at approximately 2.7 times. The share price rallied 7 per cent the following day on high volume.

On the earnings call president and chief executive officer Worthing Jackman provided a positive outlook, saying: “We continue to have visibility for double-digit revenue and adjusted free cash flow growth in 2023 led by continued elevated solid waste pricing levels plus over 4 per cent from acquisition signed or closed that’s far this year with the potential for that amount to grow to more than 5 per cent by early next year based on our current acquisition pipeline. Moreover, we expect above-average underlying margin expansion to overcome headwinds from recent decrease in recycled commodity values. And to the extent that we see any in principle commodity values or easing on the inflationary pressures during the year, those impacts along with additional acquisitions completed throughout the upcoming year will provide upside to these preliminary thoughts. We look forward to having better visibility on the tone of the economy, the pace of acquisitions and expect a commodity driven activity when we provide our formal outlook in February.”

Management raised its guidance for 2022, now anticipating revenue of approximately US$7.19-billion, up from its previous guidance of US$7.125-billion. Adjusted EBITDA is expected to come in around US$2.21-billion, up from its prior outlook of US$2.19-billion.

Returning capital to its shareholders

Management is committed to its dividend.

On Nov. 2, management announced a 10.9-per-cent dividend increase, lifting its quarterly dividend to 25.5 US cents per share, or US$1.02 per share yearly. This marks the 12th consecutive double-digit percentage increase since the company’s inaugural dividend in 2010. The current annualized yield stands at approximately 0.7 per cent.

During the first nine months of 2022, share repurchases have totaled $425-million.

Analysts’ recommendations

According to Bloomberg, 18 analysts have issued research reports on the company since the beginning of August. Fourteen analysts have buy-equivalent recommendations, three analysts have neutral recommendations and one analyst (Morningstar’s Brian Bernard) has a “sell” recommendation.

The firms providing recent research on the company are: ARC Independent Research, ATB Capital Markets, BMO Nesbitt Burns, CIBC World Markets, Deutsche Bank, Goldman Sachs, Jefferies, JP Morgan, KeyBanc Capital Markets, Morgan Stanley, Morningstar, Oppenheimer & Co., Raymond James, RBC Dominion Securities, Scotiabank, Stifel, William O’Neil, and Zacks.

Revised recommendations

After the company released its third-quarter financial results, several analysts revised their target prices including:

  • ATB Capital Markets’ Chris Murray to $200 from $180.
  • BMO’s Devin Dodge to US$150 from US$145.
  • Goldman Sachs’ Jerry Revich to US$159 from US$156.
  • Oppenheimer’s Noah Kaye to US$148 from US$134.
  • Scotiabank’s Mark Neville to US$145 from US$132.

Financial forecasts

The Street is expecting EBITDA of US$2.197-billion in 2022, up from US$1.919-billion reported in 2021, and US$2.434-billion in 2023. The Street is forecasting earnings per share of US$3.74 in 2022, up from US$3.23 reported in 2021, rising to US$4.26 in 2023.

In recent months, EBITDA forecasts have inched higher, while earnings per share estimates have been stable. Four months ago, the consensus EBITDA estimates were US$2.187-billion for 2022 and US$2.385-billion for 2023. The consensus earnings per share estimates have remained the same.

Valuation

The stock is not cheap.

According to Bloomberg, Waste Connections is trading at an enterprise value-to-EBITDA multiple of 17.1 times the 2023 consensus estimate, above its five-year historical average of 15.7 times. The peak EV/EBITDA multiple is just over 19 times during this time period.

Almost all analysts express their target prices in U.S. dollars. The average one-year target price is U.S. $150.36, suggesting the share price has nearly 9 per cent upside potential.

Insider transaction activity

On Sept. 8, executive vice-president, general counsel and secretary Patrick Shea sold 7,000 shares at a price per share of US$145.258 with 12,813 shares remaining in this specific account. Proceeds from the sale exceeded US$1-million, excluding trading fees.

On Aug. 8, director William Razzouk divested a total of 6,073 shares at an average price per share of roughly S$140.07 for two accounts. Proceeds from the sales totaled over US$850,000, not including commission charges.

On Aug. 5, senior vice-president and chief tax officer Matthew Black sold 8,500 shares at a price per share of US$138.1768, reducing this specific account’s holdings to 26,333 shares. Proceeds totaled over US$1.1-million, excluding trading fees.

Chart watch

Year-to-date, the share price is up 10.3 per cent, making it the third best performing stock in the S&P/TSX industrials (sector) index, which is down 0.4 per cent so far this year.

After the company released its third-quarter earnings results, the share price rallied 7 per cent the following trading day on high volume with over 1.2-million shares traded. To put this in perspective, the three-month historical daily average trading volume is approximately 493,000 shares. This puts the share price less than 2 per cent away from its record closing high of $193.07 set on Sept. 19, 2022.

Looking at key resistance and support levels, the stock is approaching a ceiling of resistance around $200. Looking at the downside, there is strong technical support level around $160. Failing that, there is support around $150.

ESG Risk Rating

According to risk provider Sustainalytics, Waste Connections has an ESG (environmental, social and governance) risk score of risk score of 19.4 as of Sept. 28, 2022. A risk score of between 10 and 20 reflects a “low risk” rating.

POSITIVE BREAKOUTSNov. 3 close
ATD-TAlimentation Couche-Tard Inc $61.94
ARX-TARC Resources Ltd $19.76
ATH-TAthabasca Oil Corp $2.87
BTE-TBaytex Energy Corp $7.75
BDI-TBlack Diamond Group Ltd $4.77
BBD-B-TBombardier Inc $41.75
CNQ-TCanadian Natural Resources Ltd $82.44
CET-TCathedral Energy Services Ltd $1.10
CVE-TCenovus Energy Inc $28.81
CEU-TCES Energy Solutions Corp. $2.98
CPG-TCrescent Point Energy Corp $10.92
EOG-TEco (Atlantic) Oil & Gas Ltd. $0.63
EFX-TEnerflex Ltd $7.58
ERF-TEnerplus Corp $23.72
ESI-TEnsign Energy Services Inc $3.54
EXRO-TExro Technologies Inc. $1.21
FRU-TFreehold Royalties Ltd $17.37
HPS-A-THammond Power Solutions Inc. $21.25
HWX-THeadwater Exploration Inc. $7.42
IMO-TImperial Oil Ltd $77.76
IPCO-TInternational Petroleum Corp. $15.10
NVA-TNuVista Energy Ltd $13.89
POU-TParamount Resources Ltd $32.03
PXT-TParex Resources Inc $23.15
PSI-TPason Systems Inc $15.47
PSK-TPrairieSky Royalty Ltd $21.46
PD-TPrecision Drilling Corp $107.11
QSR-TRestaurant Brands International Inc $81.03
SES-TSecure Energy Services Inc $7.73
SU-TSuncor Energy Inc $48.47
TOT-TTotal Energy Services Inc $8.40
TSU-TTrisura Group Ltd. $40.78
VMD-TViemed Healthcare Inc. $9.30
WCP-TWhitecap Resources Inc $10.92
YGR-TYangarra Resources Ltd. $3.02
NEGATIVE BREAKOUTS
AW-UN-TA&W Revenue Royalties Income Fund $32.90
ADN-TAcadian Timber Corp $15.00
AT-TAcuityAds Holding Inc. $2.01
ARE-TAecon Group Inc $9.27
AP-UN-TAllied Properties REIT $25.99
ALA-TAltaGas Ltd $23.16
APR-UN-TAutomotive Properties REIT $11.64
BDGI-TBadger Infrastruture Solutions Ltd. $26.98
ABX-TBarrick Gold Corp $17.98
GBT-TBMTC Group Inc $12.24
BPF-UN-TBoston Pizza Royalties Income Fund $14.79
CFX-TCanfor Pulp Products Inc $4.58
CSH-UN-TChartwell Retirement Residences $7.67
CHW-TChesswood Group Ltd $10.85
CTS-TConverge Technology Solutions Corp. $5.03
CPLF-TCopperleaf Technologies Inc. $3.75
DNTL-Tdentalcorp Holdings Ltd. $6.98
DBM-TDoman Building Materials Group Ltd. $5.34
D-UN-TDream Office REIT $14.83
DHT-UN-TDRI Healthcare Trust $6.67
ECN-TECN Capital Corp. $3.58
EMA-TEmera Inc $49.57
EQX-TEquinox Gold Corp. $3.45
ERE-UN-TEuropean Residential REIT $2.72
FN-TFirst National Financial Corp $33.54
HIVE-XHIVE Blockchain Technologies Ltd. $3.85
INO-UN-TInovalis REIT $4.12
JAG-TJaguar Mining Inc. $2.65
LSPD-TLightspeed Commerce Inc. $20.12
MOGO-TMogo Inc. $0.97
NGT-TNewmont Corp. $51.92
NTR-TNutrien Ltd. $97.93
ORE-TOrezone Gold Corp. $1.08
PKI-TParkland Fuel Corp $26.07
PBL-TPollard Banknote Ltd. $15.99
PBH-TPremium Brands Holdings Corp $78.24
RSI-TRogers Sugar Inc $5.86
SSL-TSandstorm Gold Ltd $6.34
SEA-TSeabridge Gold Inc $13.95
ZZZ-TSleep Country Canada $20.60
SFTC-TSoftchoice Corp. $17.12
TOY-TSpin Master Corp. $34.28
TIXT-TTELUS International Inc. $32.17
TCL-A-TTranscontinental Inc $14.93
TCN-TTricon Residential Inc $11.15
VGCX-TVictoria Gold Corp. $6.64
WTE-TWestshore Terminals Investment Corp $23.84
WILD-TWildBrain Ltd. $1.93

Source: Bloomberg

The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

This report is not an investment recommendation.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Report an editorial error

Report a technical issue

Editorial code of conduct

Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 27/05/24 4:00pm EDT.

SymbolName% changeLast
WCN-T
Waste Connections Inc
+0.23%226.67

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe