TD Cowen has shown confidence in Waste Connections Inc . (NYSE: NYSE:WCN) by raising its price target on the stock to $200.00, up from the previous target of $185.00, while the firm maintained a Buy rating on the company's shares.
The adjustment of the price target, which came on Friday, follows Waste Connections' recent quarterly results, which exceeded expectations. Despite the company's strong second-quarter performance and an increase in its forecast for 2024, shares of Waste Connections dipped on Friday. The market's reaction is attributed to a broader shift by investors away from the sector, motivated by concerns over high valuations, declining volumes, and persistent cost inflation.
TD Cowen noted Waste Connections' strong pricing capabilities and the potential for sustained growth within the solid waste industry. The firm suggests that the concerns regarding volume are exaggerated. Moreover, TD Cowen anticipates that Waste Connections will benefit from future positive developments, including the expansion of renewable natural gas (RNG) and recycling initiatives, as well as, the ongoing consolidation within the industry.
Waste Connections' performance in a challenging economic environment, coupled with strategic growth opportunities, has led to TD Cowen's optimistic stance. The company's ability to navigate sector-wide issues and capitalize on industry trends appears to underpin the rationale for the upgraded price target.
Waste Connections reported a notable 11.2% increase in revenue and a 16.4% increase in adjusted EBITDA during the second quarter of 2024. This performance led the company to raise its full-year outlook to $8.85 billion in revenue and $2.9 billion in adjusted EBITDA. The firm's Q2 adjusted EBITDA margin came in at 32.6%, exceeding expectations and marking an increase from the previous year.
Waste Connections has also announced investments in technology and several acquisitions, aiming to drive future growth. The company is also expecting a $200 million EBITDA contribution from renewable natural gas (RNG) projects by 2026, despite some anticipated delays. On the personnel front, voluntary employee turnover has significantly decreased, and the company aims to reduce it further.
InvestingPro Insights
Following TD Cowen's positive outlook on Waste Connections Inc. (NYSE:WCN), InvestingPro data further enriches the narrative by highlighting key financial metrics. The company's market capitalization stands at a robust $45.27 billion, and while the P/E ratio is high at 52.69, reflecting a premium valuation, this is somewhat mitigated by the company's consistent dividend growth, now in its 8th consecutive year. Additionally, Waste Connections has demonstrated a solid revenue growth rate of 9.78% over the last twelve months as of Q2 2024, indicating sustained business expansion.
InvestingPro Tips suggest that Waste Connections is trading at a high earnings multiple, with a high EBITDA valuation multiple, which aligns with the concerns over high valuations mentioned in the broader market sentiment. However, the company's stock is characterized by low price volatility, which may appeal to investors seeking stability. Furthermore, analysts predict profitability for the current year, which, coupled with a high return over the last decade, could reassure investors of the company's solid track record.
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