The waste industry is more than just hard-working gentlemen and women collecting trash from your home or business. It is an extensive ecosystem which is the backbone underpinning a growing economy. Waste Connections operations stand to materially benefit from the industrial and residential waste offshoot in light of Biden’s infrastructure plan, which targets growth in transportation and logistics in and to secondary markets (in which WCN dominates):
“The American Jobs Plan will build new rail corridors and transit lines, easing congestion, cutting pollution, slashing commute times, and opening up investment in communities that can be connected to the cities, and cities to the outskirts, where a lot of jobs are these days. It’ll reduce the bottlenecks of commerce at our ports and our airports.” – Biden speech on American Jobs Plan, March 31 2021
Furthermore, the plan aims for a complete overhaul of critical infrastructure including the replacement of all lead water piping. Biden aims to further jumpstart American manufacturing output by increasing factories in primary and secondary markets. The industrial and residential waste byproduct of Biden’s plan will materially increase collection and processing volumes at municipal an non-municipal solid waste landfills, of which WCN owns and operates 74 in secondary regions.
WCN focuses on secondary and rural markets as opposed to urban cities, and is able to achieve industry leading margins due to lack of competition resulting in strong pricing power and low customer churn. Over 40% of solid waste revenues are generated under exclusive arrangements (Residential: 7 years or longer for rural; municipal shorter in nature and have competitive bidding process — Commercial, industrial, and E&P service agreements typically range from 1-5 years). WCN vertically integrates its waste collection business with owning and operating landfills and transfer stations in key markets which further serves as a strategic advantage, capping competition.
It maintains incredible pricing power drives single digit annual increases to recurring revenues; 13.1% CAGR since 2014; and industry leading free cash flow and earnings margins vs. peers.
In sum, WCN is a high-quality, defensive name providing an essential service in an increasingly competitive environment. Given its industry-leading growth profile, robust (and sustainable) FCF generation, and dominance of secondary markets, you should consider the company a core holding and a safe play against volatility. It continues to innovate in the recycling and green energy conversion space, both catalysts to future growth and investment. As economies continue to open and the world resumes full-tilt, expect volumes and earnings growth to catapult.
Source: https://latecycle.com/2021/04/04/waste-connections-the-backbone-of-an-infrastructure-economy/
Submitted April 04, 2021 at 09:55AM by LostInAntiquity https://ift.tt/3rO4RoZ
