Today's breakout report includes 25 stocks on the positive breakout list (stocks with positive price momentum) and 65 stocks on the negative breakout list (stocks with negative price momentum), more than half of them. is an energy stock.
Today we'll discuss stocks on our positive breakout list. – Waste Connections Co., Ltd. (WCN-T). On Tuesday, the stock jumped on the news of the $1 billion acquisition, closing at a record high on heavy volume.
On December 11, the company announced that it has 30 energy waste treatment and disposal facilities in Western Canada: 18 treatment, recovery and disposal facilities, six landfills, four brine disposal injection wells and two disposal caverns. ) announced plans to acquire Secure Energy Service Co., Ltd. (SES-T). Together, these assets generate approximately $300 million in annual revenue. The acquisition is expected to close in the first quarter of 2024.
Ron Mittelstedt, president and chief executive officer, said in a news release: “This acquisition represents a unique opportunity for outsized value creation by expanding our presence in Canada through E&P’s network.” [exploration and production] Waste treatment and disposal facilities located in the most attractive and growing basins. This sale represents a rare combination of high-quality, well-located disposal and processing assets, combined with significant internal capacity for growth. These assets will complement our U.S. R360 environmental solutions business as we focus on serving customers involved in energy production activities. Upon completion of this acquisition, the Company's consolidated EBITDA is expected to increase by more than 50 basis points. [earnings before interest, taxes, depreciation and amortization] Profit margins are high, given the facility's disposal-oriented profile. Additionally, we expect this transaction to be accretive to earnings per share and free cash flow margin. ”
Below is a brief overview of waste connections. This can serve as a starting point for further fundamental research when conducting your own due diligence.
company
Waste Connections' core businesses include solid waste collection, solid waste disposal and transportation, and solid waste recycling services throughout North America. The company operates in 44 states in the United States and six provinces in Canada.
Looking at the geographic revenue breakdown, 87% of total revenue in 2022 will come from the United States, with the remainder coming from Canada.
A company's earnings are seasonal. Historically, revenues are lowest during the winter months, or the first quarter.
The stock is dual-listed on both the Toronto Stock Exchange and the New York Stock Exchange under the ticker WCN.
investment thesis
- industry leader. The third largest solid waste company in North America.
- strong and experienced leadership.
- Revenues increased through organic growth and acquisitions. The company completed 24 acquisitions in 2022, 30 acquisitions in 2021, 21 acquisitions in 2020, and 21 acquisitions in 2019.
- pricing power. ability to survive price increases; Solid waste prices in 2022 increased by 9% compared to the previous year.
- long term contract. Collection services under municipal contracts and exclusive franchise agreements are typically multi-year.
- Stable and attractive profit margins. Adjusted EBITDA margin in 2022 was 30.8%. From 2019 to 2023, the adjusted EBITDA margin was 30.5% to 31.2%.
- Solid price returns. On December 12th, the stock price closed at an all-time high. The stock price is up 10% since the beginning of the year. Looking back, the stock rose 4% in 2022, 32% in 2021, 11% in 2020, 16% in 2019, 14% in 2018, 27% in 2017, and 56% in 2016.
- Double-digit annual dividend increase.
- potential catalyst: Once the asset acquisition from Secure is completed (expected to close in Q1 2024), analysts may raise their revenue estimates and price targets. Additionally, management is expected to release its formal outlook for this year in February 2024.
quarterly earnings
After the market closed on October 25th, the company announced strong third quarter results. Revenues were USD 2.065 billion, an increase of 9.8% year over year. Adjusted EBITDA of USD 671.2 million was in line with consensus expectations and increased 14% year over year. Adjusted EBITDA margin was 32.5%. Adjusted earnings per share came to $1.17, beating TheStreet estimates by 3 cents. The leverage ratio at the end of the quarter was approximately 2.75x.
Despite the strong financial results, the stock price fell nearly 7% the next day on heavy volume, as land reclamation issues at two sites weighed on the stock price. This pullback was short-lived, with the stock closing at an all-time high on December 12th.
“We absorbed more than $6 million in additional operating costs at the Chiquita Canyon Landfill in Southern California, where we are managing and working to resolve issues characterized as a high-temperature landfill, or ETLF,” Mittelstedt said on the earnings call. “I'm here,” he said. [elevated temperature landfill] event. This refers to a reaction that causes rapid decomposition of waste at high temperatures. This case involves non-hazardous waste that occurs deep underground in an older portion of the landfill and was received and treated prior to our ownership of the site. While there is currently no impact on ongoing waste acceptance on site, this reaction is increasing the production of leachate with odor impacts. Since communicating this incident to the appropriate governing and regulatory bodies, we have coordinated efforts to address the odor, treat the leachate, and meet the concerns of various stakeholders.Additional costs for the third quarter [third quarter] This primarily includes leachate treatment and disposal, as well as engineering and monitoring costs.We expect these costs to increase in the fourth quarter. [fourth quarter] This increased to more than $10 million primarily as a result of increased leachate production. Furthermore, we have determined that we are not in a position at this time to estimate the ultimate impact or timing of resolution. Timing and resolution will be clearer by the February conference call.
“The second landfill issue mentioned earlier is more clearly defined and more limited, but is still expected to impact the fourth quarter. A slope failure occurred at the site, resulting in the closure of the landfill and the transfer of tons to an alternative disposal site pending repairs and on-site work. Revenues at this site during the fourth quarter We expect the impact of this reduction and increased expenses to be in the range of $5 million to $10 million, depending on how quickly we can reopen the site. We currently plan to reopen the site in mid-December. ”
dividend policy
Management remains committed to the dividend.
On October 25, management announced an 11.8% dividend increase, increasing the quarterly dividend from US$25.5 to US$28.5 per share, making the annual dividend equivalent to US$1.14. This marks his 13th consecutive double-digit annual increase since his first dividend in 2010.
The current annualized yield is approximately 0.8%.
Analyst recommendations
Since the company announced its third-quarter results in October, 22 analysts have issued research reports, including 15 with buy recommendations, 5 with neutral recommendations, and 2 analysts. List (Morningstar's Brian Barnard and Veritas' Darryl McCoubrey) published a research report. “Sale” recommended. Morningstar has maintained a “sell” recommendation since 2020. Veritas has been recommending “sell” or “reduce” the stock since mid-2022.
Here are the companies providing recent research on the company: ARC Independent Research, ATB Capital Markets, BMO Capital Markets, CIBC World Markets, Citi, Cowan, Goldman Sachs, Jefferies, JP Morgan, Morgan Stanley, Morningstar, Oppenheimer & Co., Raymond James, RBC Capital Markets, Sadif Investments Analytics, Scotiabank, Stifel, Trust Securities, Veritas Investment Research, Wells Fargo, Wolf Research, Zacks.
Revised recommendations
After the company announced the acquisition of assets from Secure Energy Services on December 11, several analysts revised their price targets as follows.
- CIBC's Kevin Chan went from $156 to $167.
- Morningstar's Brian Bernard went from $127 to $124.
- Scotiabank's Michael Doume went from US$141 to US$146.50.
Earnings forecast
The company reports its financial results in US dollars.
TheStreet expects EBITDA of $2.5 billion in 2023, up from $2.22 billion reported in 2022, rising to $2.77 billion in 2024 and $3.0 billion in 2025. doing. TheStreet expects 2023 earnings per share to be $4.14, up from the reported $3.82. It will rise to $4.73 in 2022 and $5.32 in 2025.
evaluation
According to Bloomberg, Waste Connections' enterprise value-to-EBITDA multiple is 16 times the consensus estimate for 2024, which is in line with the average over the past five years. The peak EV/EBITDA multiple during this period is just over 19x.
Most analysts express their price targets in US dollars. The average one-year price target is US$154, or $210.19, implying a 6% upside potential for the stock.
Insider trading activity
Most recently, Rob Nielsen, senior vice president of operations, sold 500 shares on December 6th at a price of $140.50 per share, leaving 2,550 shares in this particular account. Proceeds from the sale exceeded US$70,000, excluding transaction fees.
Prior to that, Robert Cloninger, Senior Vice President, Deputy General Counsel and Assistant Secretary, sold 2,945 shares on November 1 at an average price of approximately $129.89 per share, leaving 12,299 shares in this particular account. Proceeds from the sale totaled more than $382,000, excluding fees.
chart watch
On December 12th, the stock price closed at an all-time high.
After the company announced the acquisition of assets from Secure on Dec. 11, more than 1 million shares traded on the Toronto Stock Exchange, and the stock price rose 3% the next business day. His average daily trading volume over the past three months has been around 445,000 shares.
The stock has increased 10% since the beginning of the year, making it the 14th best-performing stock in the S&P/TSX Industrial Stock (Sector) Index, which is up 7%.
Looking at key technical resistance and support levels, the stock is approaching the top of the resistance level around $200. After that, the next major resistance level is around $220. On the downside, the first technical support level is near $185, close to the 50-day moving average ($184.64) and 200-day moving average ($186.23). Strong technical support is provided for approximately $180.
ESG risk assessment
Waste Connections has an environmental, social, and corporate governance (ESG) risk score of 21.8 as of October 26, 2023, according to risk provider Sustainalytics. A risk score of 20 to 30 reflects a “moderate risk” rating.
A breakout file is a technical analysis screen designed to identify companies that are technically breaking out. Additionally, the report highlights the company's dividend policy, analyst recommendations, financial forecasts and provides a brief technical analysis of the security to provide detailed information to the readers.
If a stock is on the positive breakout list, this indicates positive stock price momentum, and investors can use it to determine whether the recent stock price strength is warranted and will continue. This may be a company worth paying attention to its fundamentals. If a security is on the negative breakout list, this indicates negative price momentum, which could indicate deteriorating fundamentals or a buying opportunity.
The securities screened are the S&P/TSX Composite Index, the S&P/TSX Small Cap Index, and Canadian small cap stocks outside of these indexes with a minimum market capitalization of $200 million.
Technical analysis screens are not a replacement for fundamental analysis, but they can help you identify companies that are worth a closer look.
This report does not constitute an investment recommendation.
