Waste Connection (WCN) Acquisition Gains with Low Liquidity – May 22, 2024

Waste connection (WCN – Free Report has had an impressive run over the last six months, with the company’s stock gaining 23.9%, outpacing the 20% gain in the industry it belongs to.

WCN reported solid first-quarter 2024 results. Adjusted earnings (excluding 15 cents from non-recurring items) of $1 per share exceeded the Zacks Consensus Estimate by 2% and increased 16.9% year-over-year. Revenue of $2.1 billion beat the consensus estimate by 1% and increased 9.1% from the year-ago quarter.

How does the waste connection work?

Waste Connections typically targets secondary and rural markets to gain greater local market share, which would be difficult to achieve in highly competitive urban markets. Reducing customer churn improves financial returns. A pioneering advantage in the treatment and disposal of exploration and mining waste in certain rural areas helps to improve market position and generate higher financial returns in these areas. The company is focused on expanding its market presence and is leveraging franchise-based platforms to expand its customer base beyond exclusive market territories.

The company’s goal is to provide vertically integrated services. Operations are managed through decentralization, which leaves decision-making responsibility to customers. This makes it easier to identify and meet customer needs in real time in a cost-effective manner. This low overhead and highly efficient operating structure helps the company expand into new territories and operate in small communities that may not be attractive to competitors.

Waste Connections actively acquires companies. In 2023, 2022 and 2021, the company completed 13, 24 and 30 acquisitions, respectively. These acquisitions contributed significantly to its earnings, totaling $410.9 million in 2023, $552 million in 2022 and $215.39 million in 2021. Notable acquisitions made by Waste Connections include American Disposal Services , Groot Industries and Progressive Waste.

WCN is exposed to many operational risks, such as truck accidents, equipment defects, breakdowns and failures. Additional risks of explosion and fire are posed by fuel stations and landfill gas collection and control systems. The company’s operations in Canada are subject to risks related to currency fluctuations and uncertainty regarding monetary devaluation.

The current ratio (a measure of liquidity) of Waste Connections at the end of the first quarter of 2024 was 0.75 and was lower than in the corresponding quarter of the previous year, which was 0.82. A liquidity ratio below 1 indicates that the company may have problems with repaying its short-term liabilities.

Zacks Rank and Stocks to Consider

Waste Connections is currently sporting a Zacks Rank #3 (Hold).

Some of the better-ranked stocks in the broader Zacks Business Services sector are companies Lightspeed Sales Point (LSPD – Free Report) i WesternUnion (WU – Free Report).

Lightspeed is currently sporting a Zacks Rank of 2 (Buy). You can see see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

LSPD expects long-term earnings growth of 33.4%. It has delivered an earnings surprise of 191.7% over the trailing four quarters.

Western Union currently has a Zacks Rank of #2. The long-term earnings growth forecast is 3.8%.

WU’s earnings surprise for the last four quarters averaged 15.7%.

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