The Zacks Waste Removal Services industry stands to benefit from the current scenario as proper disposal of medical waste is a major concern for several countries across the globe amid the coronavirus outbreak. Government initiatives for sustainable waste management, increasing environmental awareness, rising population, rapid industrialization and urbanization, and growing adoption of advanced waste collection solutions are the other positives.
Waste Management, Inc. (WM), Republic Services, Inc. (RSG) and Clean Harbors, Inc. (CLH) are some stocks that are likely to gain from the abovementioned industry trends.
Companies in the Zacks Waste Removal Services industry are engaged in the collection, transportation, treatment, disposal, inspection and regulation of any form of waste. The companies serve residential, municipal, commercial and industrial customers in the United States and internationally.
What’s Shaping the Future of Waste Removal Services Industry?
A Healthy Demand Environment:The industry is mature with growth coming from volume and price increases. Income and cash flow have grown steadily over the past few years, enabling most industry players to pursue acquisitions and other investments. Per a report, the global waste management market is expected to reach $2,339.8 billion by 2027 from $2,080 billion in 2019, witnessing a CAGR of 5.5% from 2020 to 2027.
Medical Waste Disposal Boosts Industry Prospects:The coronavirus outbreak has necessitated the proper disposal of trash. In fact, waste management companies are at an advantage in situations such as this, as healthcare officials have to dispose of used masks, gloves, suits, syringes and other medical equipment properly to curb the spread of infection. Government initiatives as well as stringent rules and regulations to advance sustainable waste management mechanisms and put a check on illegal dumping are also expected to boost the industry.
Rise in Non-hazardous Waste:Increase in population, industrialization and urbanization will remain key drivers of the industry as it prompts significant rise in garbage and recycling. Also, technology adoption, and use of advanced collection and recycling solutions are expected to pick up pace. This should enhance business opportunities for waste management companies.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Waste Removal Services industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #155. This rank places it in the bottom 39% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Despite the cloudy prospects, we present a few stocks that investors can buy or retain in their portfolio. Before that, let’s take a look at the industry’s recent stock market performance and its current valuation.
The Zacks Waste Removal Services industry has outperformed the broader Zacks Business Services sector but has underperformed the Zacks S&P 500 composite over the past year.
The industry has gained 37.8% over this period compared with 19.4% rally of the broader sector and 50.1% increase of the Zacks S&P 500 composite.
One-Year Price Performance
Industry’s Current Valuation
On the basis of EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization), which is commonly used for valuing waste removal services stocks because of their high debt levels, the industry is currently trading at 12.84X compared with the S&P 500’s 18.48X and the sector’s 14.81X.
Over the past five years, the industry has traded as high as 12.92X, as low as 8.30X and at the median of 10.86X, as the charts below show.
3 Waste Removal Services Stocks to Keep a Close Eye On
We are presenting three stocks that carry a Zacks Rank #3 (Hold) and are well positioned to grow in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Waste Management: This Texas-based company provides waste management environmental services to residential, commercial, industrial, and municipal customers in North America.
Amid the coronavirus crisis, the company’s top line has been benefiting from acquisition revenues and growth from yield.Consistency in rewarding its shareholders through share buybacks and dividend payments boosts investor confidence and positively impact earnings per share. Additionally, Waste Management’s focus on secondary and rural markets to garner a higher local market share is appreciable. The company has optimal asset positioning to generate higher profitability. Acquisitions act as a key growth catalyst.
The Zacks Consensus Estimate for current-year EPS has improved 2.8% in the past 60 days. The stock has gained 37.9% over the past year.
Price & Consensus: WM
Republic Services:This Arizona-based company provides non-hazardous solid waste collection, transfer, recycling, disposal, and energy services for small-container, large-container, municipal and residential, and energy services customers in the United States and Puerto Rico.
The positive impact of acquisitions and average yield has been aiding the company’s top-line growth. Republic Services is focused on increasing its operational efficiency by shifting to compressed natural gas collection vehicles and converting rear-loading trucks to automated-side loaders to reduce costs and improve profitability. The company continues to grow internally with the help of long-term contracts for the collection, recycling and disposal of solid waste materials. Consistency in dividend payments and share buybacks not only boost investor confidence but also positively impact earnings per share.
The Zacks Consensus Estimate for current-year EPS has improved 1.1% in the past 60 days. The stock has gained 34.7% over the past year.
Price & Consensus: RSG
Clean Harbors: This Massachusetts-based company provides environmental, energy, and industrial services in North America.
The company is focused on improving its efficiency and lowering operating costs through enhanced technology, process efficiencies and stringent cost management. The company continues to make capital investments to enhance its quality and comply with government and local regulations. Acquisitions have been helping the company expand its business across multiple lines of services. Consistency in rewarding its shareholders through share buybacks boosts investor confidence and earnings per share.
Notably, cost-reduction efforts, productivity improvements, healthy mix of higher margin work have been aiding Clean Harbors’ bottom line amid the COVID-19 pandemic.
The Zacks Consensus Estimate for current-year EPS has improved 14.6% in the past 60 days. The stock has gained 76.6% over the past year.
Price & Consensus: CLH
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