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Here's Why Casella Waste (CWST) is an Attractive Stock to Own

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Casella Waste Systems, Inc. CWST currently seems to be a smart choice for investors seeking exposure in the pollution control space. The company enjoys benefits from acquired assets and solid demand for its services. Also, positive revision in its earnings estimates reflects its healthy growth prospects.

The Rutland, VT-based solid waste service provider currently has a market capitalization of $2 billion. It presently has a Zacks Rank #2 (Buy) and a VGM Score of B. The company belongs to the Zacks Pollution Control industry. Stringent government regulations, pollution-related risks and growing demand in emerging nations are aiding providers of pollution control equipment and services.

Notably, Casella Waste reported better-than-expected results in third-quarter 2019, with earnings surpassing estimates by 15.63%. Also, it delivered average positive earnings surprise of 1.36% in the last four quarters.

Year to date, the company’s shares have gained 47.5% compared with the industry’s growth of 36.8%.

Below we discussed why investing in Casella Waste will be a smart choice.

Revenue Growth Prospects: The company’s focus on providing integrated waste services — including disposal, recycling and providing customer solutions — has earned it a competitive edge in the industry. Also, a solid network for transferring waste to processing and disposal facilities is a boon.

In the last three years (2016-2018), the company’s revenues grew 5.4% (CAGR), while a year-over-year increase of 14.9% was recorded in third-quarter 2019. Results benefited from strengthening customer solutions volume, effective pricing and recycling activities. Also, gains from acquired assets (explained below) boosted results.

For 2019, the company anticipates revenues of $735-$745 million, higher than $720-$735 million stated previously. Also, the revised projection reflects year-over-year growth of 11-13%, benefiting largely from acquired assets as well as healthy contributions from customer solutions, solid waste and recycling activities.

The Zacks Consensus Estimate for Casella Waste’s revenues is pegged at $742.9 million for 2019 and $811 million for 2020, suggesting year-over-year growth of 12.5% and 9.2%.

Outlook, Earnings Estimates: In addition to the top line, the company provided impressive projection for adjusted earnings before interest, tax, depreciation and amortization (EBITDA). It now expects EBITDA of $154-$157 million versus previously stated $153-157 million.

Also, the company predicts improved cash position for 2019. It expects net cash generated from operating activities of $114-$117 million, higher than $111-$115 million stated earlier. Casella Waste anticipates free cash flow (normalized) of $52-$55 million versus $51-$55 million mentioned previously.

We believe that improved projections have created positive sentiments for the company’s growth prospects. In the past 30 days, the Zacks Consensus Estimate for Casella Waste’s earnings per share has been raised 2.4% to 85 cents for 2019 and 1% to $1.01 for 2020.

Casella Waste Systems, Inc. Price and Consensus


Casella Waste Systems, Inc. Price and Consensus
Casella Waste Systems, Inc. Price and Consensus

Casella Waste Systems, Inc. price-consensus-chart | Casella Waste Systems, Inc. Quote

Solid Long-Term Prospects: The company is focused on improving landfill returns, collection profitability and technological capabilities. Also, it remains committed toward investing in growth programs.

Between 2017 and 2021, the company anticipates growing organic revenues by 3-4% annually. It expects spending on acquisitions or developments of $20-$40 million every year, while anticipates rise in normalized free cash flow of 10-15% annually. Net leverage is estimated to be 3.0x to 3.25x.

Acquisitions: The company seems to prefer acquisitions to fortify the product portfolio. In third-quarter 2019, acquired assets increased sales by 10.6%. Notably, eight acquisitions have been completed year to date, with annualized revenues of $52 million (higher than $20-$40 million predicted for 2019).

In September 2019, the company completed the acquisition of Republic Services, Inc’s solid waste hauling and transfer assets (based in Cheshire, MA, and Albany, NY). Casella Waste anticipates the buyout to generate annualized revenues of $30 million.

Other Key Picks

Some other top-ranked stocks in the Zacks Industrial Products sector are Tennant Company TNC, Standex International Corporation SXI and The Middleby Corporation MIDD. While Tennant currently sports a Zacks Rank #1 (Strong Buy), Standex and Middleby carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for Tennant and Middleby have improved for the current year while remained unchanged for Standex. Further, positive earnings surprise for the last reported quarter was 40% for Tennant, 2.11% for Standex and 5.52% for Middleby.

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