Waste Connections, Inc. (WCN, NYSE) is a solid waste disposal company providing collection, transfer, disposal and recycling services to 1.5 million customers in the western and southern U.S. The company owns and operates 134 collection operations, 55 transfer stations, 43 landfills, and 37 recycling operations. Approximately 64% of revenue is from collection services, 27% from disposal services, and 9% from recycling. Waste haulers provide an essential service, with predictable cash flow even in weak economic conditions. So the company maintained profitability and strong cash flow even through the recent severe recession. WCN also took advantage of its strong balance sheet and cash flow to make several acquisitions last year, including two large collection service operations in the northwest, and six landfills and collection routes from Republic Services (which anti-trust regulations required Republic to sell as a result of its merger with Allied Waste). Waste Connections has better profit margins than most waste disposal companies since it owns its own landfills, and therefore does not pay tipping rates to independent landfill operators. Meanwhile, only 20% of the company’s revenues are generated in markets where it competes with larger rivals in densely populated areas. Waste Connections concentrates on markets in less-populated secondary markets, where its growth benefits not just from acquisitions and price increases, but from population growth. The company has just completed a round of price increases expected to add 2.5% to revenues for the year, while its recycling operations are benefiting from a rebound in used paper and cardboard prices, as the economy recovers. The company will also likely continue its history of acquisitions. Value Line is forecasting that Waste Connections’ 2010 earnings will be up 17%. We have a new buy signal on WCN on our technical indicators, where the stock has found support at its 20-week moving average. Our upside target is $44 a share. We suggest a trailing ‘mental’ protective stop initially set at $29.90.
Sy Harding, The Street Smart Long & Short Stock Advisory
