Goldman Sachs analyst Alex Ovshey believes that one man's trash is another's attractive investment.
He raised his coverage view of the waste management business to "Attractive" from "Neutral" on Wednesday, saying that he expects stronger volume in municipal solid waste will increase pricing in 2013-2015.
The analyst said in a research note that he has found that residential fixed investment is the key driver of US municipal solid waste volume volatility. He believes the recovery in residential fixed investment — a measure of money spent on residences — from historic low levels will boost municipal solid waste volume and pricing.
The analyst expects volume will increase beginning in mid-2013. In turn, he upgraded his earnings expectations on a number of waste management companies and revised several of his ratings on their stock.
Ovshey reiterated a "Buy" on Republic Services Inc. and added it to his conviction list. Shares gained 54 cents to close at $29.13.
He also upgraded Waste Management Inc. to "Buy" and increased its price target to $42 from $33, given its leverage to improve its volume and pricing, as well as its strong dividend yields. Shares rose 89 cents, or 2.7 percent, to close at $33.52.
The analyst also reinstated coverage of Waste Connections Inc. with a "Neutral" rating and $40 price target. The company recently completed an acquisition of an oilfield waste treatment business and the analyst likes the revenue growth potential there. Waste Connections rose 29 cents to close at $33.34.