12 January 2015
1yr Target $55.00
1yr Cap Gain 29.22%
1yr Est Tot Return 30.44%
3yr DivGR 54.36%
5yr DivGR N/A
Market Cap $5.27 Bil
EPS (ttm) $1.77
Payout Ratio 29.37%
EPS next yr $2.20
Forward P/E 19.27
Sales $2.04 Bil
Income $221.20 Mil
Profit Margin 10.83%
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As of December 31, 2013, Waste Connections served residential, commercial, industrial and E&P customers in 31 states: Alabama, Alaska, Arizona, California, Colorado, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Mexico, New York, North Carolina, North Dakota, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas, Utah, Washington and Wyoming.
Waste Connections seeks to avoid highly competitive, large urban markets and instead target markets where the company can attain high market share either through exclusive contracts, vertical integration or asset positioning. The company also targets niche markets, like E&P waste treatment and disposal services, with similar characteristics and higher comparative growth potential. Waste Connections is a leading provider of waste services in most of its markets, and the key components of the company's operating strategy, which are tailored to the competitive and regulatory factors that affect our markets, are as follows:
- Target Secondary and Rural Markets. By targeting secondary and rural markets, Waste Connections believes that the company is able to garner a higher local market share than would be attainable in more competitive urban markets, which they believe reduces their exposure to customer churn and improves financial returns. In certain niche markets, like E&P waste treatment and disposal, early mover advantage in certain rural basins improves market positioning and financial returns given the limited availability of existing third party owned waste disposal alternatives.
- Control the Waste Stream. In markets where waste collection services are provided under exclusive arrangements, or where waste disposal is municipally owned or funded or available at multiple sources, Waste Connections believes that controlling the waste stream by providing collection services under exclusive arrangements is often more important to our growth and profitability than owning or operating landfills. In addition, in certain E&P markets with “no pit” rules or other regulations that limit on-site storage or treatment of waste, control of the waste stream allows the company to generate additional service revenue from the transportation of waste, as well as the waste treatment and disposal, thus increasing the overall scope and value of the services provided.
- Optimize Asset Positioning. Waste Connections believes that the location of disposal sites within competitive markets is a critical factor to success in both MSW and E&P waste services. Given the importance of and costs associated with the transportation of waste to treatment and disposal sites, having disposal capacity proximate to the waste stream will provide a competitive advantage and serve as a barrier to entry for competitors.
- Provide Vertically Integrated Services. In markets where Waste Connections believes that owning landfills is a strategic advantage to a collection operation because of competitive and regulatory factors, the company generally focuses on providing integrated services, from collection through disposal of solid waste in landfills that it owns or operates. Similarly, the company sees this strategic advantage in E&P waste services where they offer closed loop systems for liquid and solid waste storage, transportation, treatment, and disposal.
Waste Connections's operations include market areas where the company has exclusive arrangements, including franchise agreements, municipal contracts and governmental certificates, under which the company is the exclusive service provider for a specified market. These exclusive rights and contractual arrangements create a barrier to entry that is usually obtained either through the acquisition of a company with such exclusive rights or contractual arrangements or by winning a competitive bid.
Waste Connections intends to expand the scope of the company's operations by continuing to acquire MSW and E&P waste facilities and companies in new markets and in existing or adjacent markets that are combined with or “tucked in” to the company's existing operations. Waste Connections focuses their acquisition efforts on markets that the company believes will provide significant growth opportunities for a well-capitalized market entrant and where they can create economic and operational barriers to entry by new competitors. This focus typically highlights markets in which the company can: (1) provide waste collection services under exclusive arrangements such as franchise agreements, municipal contracts and governmental certificates; (2) gain a leading market position and provide vertically integrated collection and disposal services; or (3) gain a leading market position in a niche market through the provision of treatment and disposal services.
During the year ended December 31, 2013, Waste Connections completed eight acquisitions, none of which individually accounted for greater than 10% of our total assets. The total fair value of consideration transferred for the eight acquisitions completed during the year ended December 31, 2013 was approximately $64.2 million. During 2012, the company acquired the business of R360 Environmental Solutions, Inc., or R360, a leading provider of non-hazardous E&P waste treatment, recovery and disposal services, for total fair value of consideration transferred of $1.38 billion. During the year ended December 31, 2012, the company completed 12 other acquisitions, none of which individually or in the aggregate accounted for greater than 10% of our total assets. The total fair value of consideration transferred for the 12 other acquisitions completed during the year ended December 31, 2012 was approximately $275.8 million. During the year ended December 31, 2011, the company completed 13 acquisitions, none of which individually accounted for greater than 10% of our total assets. The total fair value of consideration transferred for the 13 acquisitions completed during the year ended December 31, 2011 was approximately $375.7 million.
The company's revenues have been on a consistently higher trajectory for the last ten years. Earnings have been less consistent but they have, for the most part, increased over those ten years also. Fortunately for investors, the company started paying dividends in 2010 and have raised them ever since.
Based on analysts estimates going forward, it appears that dividends will continue into the future. Notice that dividends have been growing at a slower rate than both the revenues and the earnings so I believe that the dividend growth rate will have to excel in order to keep up with the expanding revenues and earnings. In fact, just to maintain a 25% payout the company will have to increase dividends at nearly 15% per year. And with the current payout ratio at only 25% there's plenty of room for increases.
Revenue Growth Rate
1 year = 15.66%
2 year = 13.13%
3 year = 13.44%
4 year = 12.70%
5 year = 13.04%
10 year = 13.11%
Earnings Growth Rate
1 year = 20.61%
2 year = 4.38%
3 year = 10.73%
4 year = 14.78%
5 year = 10.02%
10 year = 9.45%
Dividend Growth Rate
1 year = 10.81%
2 year = 15.00%
3 year = 54.36%
Waste Connections, Inc., is part of the Waste Management Industry which is part of the Industrial Goods Sector of the economy. Below are a few of the major corporations included in this industry that pay at least a minimal dividend. They are listed in the order of their market capitalization.
- Waste Management, Inc. (WM)
- Republic Services, Inc. (RSG)
- Waste Connections, Inc. (WCN)
- Covanta Holding Corporation (CVA)
- US Ecology, Inc. (ECOL)
- Ecology and Environment, Inc. (EEI)
Waste Connections Inc. has everything I'm looking for in a company except for a dividend above 2.00%, a long track record of raising dividends and a P/E under 20. But based upon analyst's estimates it appears that the earnings and dividends will continue to grow for at least the next two years which would make these goals attainable.
I like how the company enters entire territories that can be acquired and then defended against competitors. I also like how they sell additional products into that same space and then expand into adjacent areas to leverage their expertise.
I expect to start accumulating a position in this company in the next few weeks as funds become available.