Citi has increased the price target for Waste Connections Inc . (NYSE:WCN) to $190 from $189, while keeping a Neutral rating on the stock following the company's strong second-quarter performance, which saw a significant increase in EBITDA margins.
Waste Connections reported a 150 basis point year-over-year rise in EBITDA margins to 32.6%, surpassing expectations by 10 basis points, attributed to favorable net pricing.
The company has updated its 2024 EBITDA guidance to suggest margins of 32.8%, a slight improvement from the previous forecast of 32.7%.
A Citi analyst noted that the second quarter faced some pressure, with special waste volumes decreasing by 13% year-over-year, contributing to a 20 basis point margin headwind. Additionally, the anticipated earnings from renewable natural gas (RNG) projects have been rescheduled from 2024 to 2025, which is expected to add approximately $10 million to EBITDA at around 70% margins.
Waste Connections has also revised its 2024 revenue guidance upwards by $100 million to $8.85 billion due to a strong mergers and acquisitions pipeline that has more than compensated for softer volume.
The company closed deals that added over $150 million in annualized Solid Waste revenue in the first quarter, acquired more than $125 million annualized in the second quarter, and has another $150 million under definitive agreement that has not yet been factored into the guidance.
The updated price target of $190 is based on Citi's revised estimates, which assume a 31 times multiple on the company's 2025 free cash flow per share. This represents a 3 times premium relative to its competitor Republic Services (NYSE:RSG), compared to a 3.8 times premium over the past five years. The firm's stance remains neutral, citing a fair valuation of the shares.
Waste Connections reported a notable 11.2% increase in revenue and a 16.4% increase in adjusted EBITDA. This strong performance led to an upward revision of the full-year outlook to $8.85 billion in revenue and $2.9 billion in adjusted EBITDA.
As a result, TD Cowen raised its price target for Waste Connections from $185.00 to $200.00, maintaining a Buy rating on the company's shares. The firm cited Waste Connections' strong pricing capabilities and the potential for sustained growth within the solid waste industry as reasons for this adjustment.
InvestingPro Insights
Waste Connections Inc. (NYSE:WCN) continues to demonstrate financial resilience and growth potential, as reflected in recent metrics and analysis from InvestingPro. With a market capitalization of $45.52 billion and a revenue growth of 9.78% in the last twelve months as of Q2 2024, the company is maintaining a strong position in the market. The InvestingPro Tips highlight that Waste Connections has raised its dividend for 8 consecutive years, showcasing a commitment to returning value to shareholders. Furthermore, the company is also profitable over the last twelve months, which aligns with analysts' predictions that it will remain profitable this year.
InvestingPro Data shows a P/E ratio of 52.91, which indicates that the stock is trading at a high earnings multiple, potentially suggesting a premium valuation. The company's revenue stands at $8.421 billion, with a solid gross profit margin of 41.54%, underscoring its ability to manage costs effectively. Additionally, the dividend yield is currently at 0.65%, with a notable dividend growth rate of 11.76% in the last twelve months as of Q2 2024. These financials provide a comprehensive picture of Waste Connections' robust performance and could be a valuable addition for investors considering the stock.
For those interested in a deeper analysis, there are 11 more InvestingPro Tips available, providing a more nuanced view of the company's financial health and future prospects. Investors can access these tips by visiting https://www.investing.com/pro/WCN and using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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