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Waste Connections (WCN) Up 5.3% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Waste Connections (WCN). Shares have added about 5.3% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Waste Connections due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Waste Connections Surpasses Q3 Earnings & Revenue Estimates

Waste Connections reported better-than-expected third-quarter 2020 results.

Adjusted earnings of 72 cents per share beat the Zacks Consensus Estimate by 9.1% but decreased 1.4% year over year. Revenues of $1.39 billion beat the consensus mark by 0.7% but declined 1.6% year over year.

Acquisitions contributed $44.2 million to revenues in the reported quarter.

Revenues by Segment

Solid Waste Collection segment revenues increased 1.9% year over year to $1.01 billion. The segment accounted for 72.4% of total revenues.

Solid Waste Disposal and Transfer segment revenues decreased 1.9% from the year-ago quarter to $311.6 million. The segment contributed 22.4% of total revenues.

E&P Waste Treatment, Recovery and Disposal segment revenues decreased 64.4% from the year-ago quarter to $23.6 million. The segment contributed 1.7% to total revenues.

Intermodal and Other segment revenues increased 2.6% to $27.1 million. The segment accounted for 2% of total revenues.

Solid Waste Recycling segment revenues improved 51% year over year to $20.7 million. The segment accounted for 1.5% of total revenues.

Operating Results

Adjusted EBITDA in the reported quarter was $432.6 million compared with $443.6 million in the year-ago quarter. Adjusted EBITDA margin came in at 31.1% compared with 31.4% in the year-ago quarter. 

Operating income totaled $230.7 million compared with$236.6 millionin the year-ago quarter. Operating income margin came in at 16.6% compared with 16.7% in the year-ago quarter. 

Balance Sheet and Cash Flow

Waste Connections exited third-quarter 2020 with cash and cash equivalents of $859.09 million compared with $790.55 million at the end of the prior quarter. Long-term debt was $4.68 billion compared with $4.69 billion at the end of the prior quarter.

The company generated $432.4 million of cash from operating activities in the reported quarter. Adjusted free cash flow was $283.8 million. Capital expenditure totaled $151.9 million.

Waste Connections’ board of directors approved a dividend hike of 10.8%, reflecting its 10th consecutive double-digit percentage increase since the initiation of dividend payment in 2010. The company paid out dividend of $49 million in the reported quarter.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 5.13% due to these changes.

VGM Scores

At this time, Waste Connections has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Waste Connections has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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