Waste Connections Puts Together a Steady Picture

02/15/2019 5:00 am EST

Focus: CONSUMER

Glenn Rogers

Contributing Editor, Internet Wealth Builder and The Income Investor

The past couple of months have been extremely volatile for stocks and there’s little to suggest that this wild ride will end any time soon. Global slowdown, trade wars, Brexit, the Huawei mess, late stage cycle, and on and on, cautions Glenn Rogers, contributing editor to Internet Wealth Builder.

In the meantime, I suggest you look at a stock that seems to be largely immune to external factors and relies instead on solid execution and consistent demand for the company’s services. The business is trash collection and the company is Waste Connections (WCN).

The company operates in Canada and the U.S., serving six million residential, commercial, and industrial customers. It is also active in the oil patch, providing waste disposal for that segment.

The business is vertically integrated since the company controls everything from collection to recycling to landfill. That sets it apart from some of its competitors, who only focus on some elements of the trash disposal cycle.

It's true that solid waste is a commodity business, which means scale is important. So being the low-cost provider will win. But even though it’s a commodity business, it’s one that has a very steady demand and within their collection areas most communities commit to a single provider and are reluctant to change unless service falls off.

As a result, growth comes mostly come from consolidations through mergers and acquisitions. That’s an area this company has excelled in over a long period of time. It is the third largest waste company with $24 billion in assets and 16,000 employees.

Compared to its main competitors Waste Management (WM) and Republic Waste (RSG) it has produced twice the shareholder value and had 14 consecutive years of positive shareholder returns.

The chart over the past three years is a thing of beauty, up and to the right, and is largely unaffected by the news of the day — which these days is very reassuring.

Revenues have reflected that rise with an increase from $100 million when it went public to $5.4 billion projected in 2019 (figures in U.S. dollars). Free cash flow is $3 a share, heading to $4.20 in 2020. The company also pays a small dividend of $0.16 per quarter, which was bumped up by 14% in November. It is likely to increase over time.

So, this is an unexciting business in exciting times, which is just what the doctor ordered. This a fine time to be defensive and a this is a good long term holding for you. True, the stock is not cheap, but these days security is worth a premium.Buy with a target of $95.

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