RBC on North American waste sector A good defensive sector to consider
North American waste sector
Globe&Mail
July 19, 2022
In a research report previewing earnings season for the North American waste sector, RBC Dominion Securities analyst Walter Spracklin reduced his targets for GFL Environmental Inc. (GFL-N/GFL-T, “outperform”) to US$37 from US$44 and Waste Connections Inc. (WCN-N/WCN-T, “outperform”) to US$147 from US$153. The averages are US$43.71 and US$146.43, respectively.
“Share prices in the waste sector have held in extremely well (relatively speaking), as the sector’s defensive characteristics and strong pricing power have led it to be a safe haven for many investors amidst economic uncertainty,” he said. ”Our (upward) revisions for Q2 are minor, and we expect most companies to likely increase guidance on the back of first-half results that have been above guidance trends. The key question will be to what extent guidance will be raised, given the uncertainty around the economic backdrop (which is why we have left our own estimates intact for now). That said, we have taken our target multiples down on rising rate impact on valuations. In addition to the magnitude of guidance increases, key areas of focus will be pricing growth, labor availability, volume trends, and the M&A climate in the back half of the year. Finally, we flag GFL as the most attractively valued, with economic uncertainty and rising rates having impacted its valuation most (year-to-date down 34 per cent vs. peers down 7-9 per cent).”