Waste Connections, Inc. WCN stock has had an impressive run in the past year. Shares of the company have gained 17.8%, outperforming the industry by 16.2% while underperforming the Zacks S&P 500 composite by 27.7%, respectively.

Six Months Price Performance

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Waste Connections reported solid third-quarter 2024 results. Adjusted earnings (excluding 16 cents from non-recurring items) of $1.4 per share surpassed the Zacks Consensus Estimate by 3.9% and increased 15.4% on a year-over-year basis. Revenues of $2.3 billion beat the consensus estimate by 2.2% and grew 13.3% from the year-ago quarter’s actual.

How is Waste Connections Doing?

WCN aims for the secondary and rural markets to grab a higher local market share, which would not be easier to attain in more competitive urban markets. This lowers the company’s exposure to customer churn and improves financial returns. In a few niche markets, such as E&P waste treatment and disposal, early mover advantage in certain rural basins plays an important role in augmenting market positioning and generating greater financial returns, given the limited availability of third-party-owned waste disposal alternatives.

The company aims to increase market penetration and provide additional services to capitalize on future drilling opportunities in those areas. Leveraging franchise-based platforms for customer base expansion beyond the exclusive market territories is something that WCN aims for as well.

WCN focuses on providing vertically integrated services from collection via the disposal of solid waste in landfills that it operates or owns. The operations are managed on a decentralized basis to give the decision-making authority to customers, allowing Waste Connections to identify and address the needs of customers on a real-time basis in a cost-efficient way. The company expands geographically in contiguous markets unappealing to its competitors using its low overhead and highly effective operational structure.

Waste Connections has been active on the acquisition front. It follows a combination of financial, market and management criteria to assess the opportunities from buyouts. In new markets, The company uses its initial buyout as an operating base and seeks to strengthen the acquired operation's presence by providing additional services, adding customers and making “tuck-in” acquisitions of other waste companies in that market or adjacent markets. In 2021, 2022 and 2023, the company completed 30, 24 and 13 buyouts and generated revenues of $215.4 million, $552 million and $410.9 million, respectively.

The company is consistent in rewarding its shareholders. In 2021, 2022 and 2023, Waste Connections paid out $220.2 million, $243 million and $270.6 million in dividends, respectively. Such strategies indicate the company’s commitment to create value for shareholders and underline its confidence in its business.

Risks Faced by WCN

Over the years, stringent environmental, health, and safety laws and regulations have hindered operations and surged operating costs of the company. The industry is subject to regular enactment of new or amended federal, state, and local statutes and regulations that impose significant capital and operational hindrances.

There is a low barrier to entry into the regulated waste collection and disposal business. Competitors often use aggressive pricing to gain a higher market share. There are larger and better-capitalized companies in this capital-intensive industry, which affects its ability to invest in substantial labor and capital resources. The profitability and margins of the company can deteriorate from these aforementioned factors.

Waste Connections’ current ratio (a measure of liquidity) at the end of third-quarter 2024 was 0.77, lower than the industry average of 0.93. Despite the 5.5% rise in the current ratio from the year-ago quarter, a current ratio of less than 1 indicates that the company may have problems paying off its short-term obligations.

WCN’s Zacks Rank & Stocks to Consider

Waste Connections carries a Zacks Rank #3 (Hold) at present.

Some better-ranked stocks in the broader Zacks Business Services sector are UiPath PATH and RB Global, Inc. RBA.

UiPath flaunts a Zacks Rank of 1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

PATH has a long-term earnings growth expectation of 19.3%. It delivered a trailing four-quarter earnings surprise of 38.8%, on average.

RB Global sports a Zacks Rank of 1 at present. It has a long-term earnings growth expectation of 10.6%.

RBA delivered a trailing four-quarter earnings surprise of 16.3%, on average.

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