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The activities of Waste Management companies primarily involve managing waste from inception to final disposal. This multi-billion dollar industry offers a wide range of solutions to recycle items that are not considered trash.
The industry is highly dependent on industrial, commercial and construction activities. The major services offered include waste collection, transport, treatment, disposal, inspection and regulation.
Here are the major themes that investors interested in this industry should be aware of:
- This is a mature slow-growth industry, with growth coming from volume growth and price increases. While demand remains fairly stable, volume growth comes from economic growth.
- Revenues and cash flows remain fairly stable through the economic cycle, enabling most industry players to pay out stable dividends.
- Recycling remains a growth area for the industry, with most industry players undertaking municipal solid waste and non-hazardous industrial waste recycling measures.
Government initiatives to introduce sustainable waste management mechanisms and put a check on illegal dumping are also expected to drive demand. The Environmental Protection Agency’s (EPA) Resource Conservation and Recovery Act (RCRA), aimed at reducing open dumping and managing hazardous and non-hazardous waste, will significantly benefit the industry.
Per a new report by Allied Market Research, the global waste management market size is projected to witness CAGR of 6.2% from 2017 to 2023 to reach $435.0 billion.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Waste Removal Services Industry is housed within the broader Zacks Business Services Sector.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates a relatively favorable earnings outlook for the industry.
It carries a Zacks Industry Rank #84, which places it at the top 33% of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The trend in collective earnings estimate revisions of the constituent companies indicates a solid earnings outlook for the industry, which, in turn has helped it gain a position within the top 50%.
The sell-side analysts covering the companies in the Zacks Waste Removal Services Industry have been steadily increasing their estimates.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms Sector and S&P 500
The Zacks Waste Removal Services Industry has lagged the broader Zacks Business Services Sector as well as the S&P 500 Index over the past year.
The industry has gained 8.8% over this period compared to the S&P 500 Index and broader sector’s rise of 9.4% and 10.9%, respectively.
One-Year Price Performance
Industry’s Current Valuation
Comparing the industry with the S&P 500 Index on the basis of trailing 12-month EV/EBITDA ratio, which is a commonly used multiple for the industry, we see that the industry’s ratio of 12.17X is higher than the S&P 500’s 11.84X. It is, however, below the sector’s EV/EBITDA ratioof 13.38X.
Over the last 5 years, the industry has traded as high as 12.50X, as low as 8.27X and median of 9.62X, as the charts below show.
EV/EBITDA Ratio TTM
The waste management market should gain traction backed by rise in population, increase in environmental awareness, and rapid industrialization and urbanization.
Strict government restrictions to limit landfills and steps to increase the collection of waste for recycling are also expected to create opportunities for the industry.
One stock in the Zacks Waste Removal Services universe currently holds a Zacks Rank #1 (Strong Buy). Below, we have also mentioned two more stocks from the same industry, which we believe investors should hold on to, as they carry a Zacks Rank #3 (Hold).
Let’s have a look at them.
Clean Harbors, Inc. (CLH): The company sports a Zacks Rank #1. This Massachusetts-based provider of environmental, energy, and industrial services has gained 25.3% year to date. The Zacks Consensus Estimate for current year EPS has improved 2% in the past 60 days.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Chart: Price and Consensus: CLH
US Ecology, Inc. (ECOL): The stock of this Idaho-based provider of environmental services to commercial and government entitieshas gained 32% year to date. The Zacks Consensus Estimate for current year EPS has remained unchanged in the past 60 days. Currently, it has a Zacks Rank #3.
Price and Consensus: ECOL
Advanced Disposal Services, Inc. (ADSW): The stock of this Florida-based provider of non-hazardous solid waste collection, transfer, recycling, and disposal services has climbed 10.4% year to date. The Zacks Consensus Estimate for current year EPS has remained unchanged in the past 60 days. Currently, it carries a Zacks Rank #3.
Price and Consensus: ADSW
Waste Connections, Inc. (WCN): The stock of this U.S.-based provider of waste collection, transfer, disposal, and recycling services has rallied 6.5% year to date. The Zacks Consensus Estimate for current year EPS has remained unchanged in the past 60 days. Currently, it has a Zacks Rank #3.
Price and Consensus: WCN
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Waste Connections, Inc. (WCN) : Free Stock Analysis Report
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