Is Progressive Waste Solutions An Unloved Gem in the North American Garbage Industry?

Find out where BIN stands relative to it North American peers on this important metric.

| More on:
The Motley Fool

Maybe it’s because a pack of racoons left our garbage strewn across the driveway last night (for about the 715th time) but for some reason I’ve got garbage on the mind.

We deal with garbage on a daily basis and therefore, there aren’t many industries that we are better suited to “get”.

And because garbage is something that needs to be dealt with on a daily basis, the industry has the appealing characteristic of relative consistency going for it.  A friend of the long-term investor.

What this level of consistency lends itself to is an industry that cranks out free cash.  Another friend of the long-term investor.  Because of the capital intensity involved in the business, earnings aren’t necessarily the best metric to key on when analyzing a waste related entity.  Stick to free cash and you’ll have a better picture of the strength of the underlying business.

With that said, let’s have a look at how Canada’s largest listed garbage related entity, Progressive Waste Solutions (TSX:BIN,NYSE:BIN) stacks up against its North American peers using several free cash based metrics.  The results are tabled below. (FCF margin = Free cash/Revenue)

Company Name

Market Cap (B)

FCF Margin (LTM)

FCF Margin (5 Yr)

P/FCF LTM

Waste Connections   (NYSE:WCN)

$5.220

16.2%

15.5%

17.8

Republic Services   (NYSE:RSG)

$12.374

8.3%

7.6%

18.3

Waste Management (NYSE:WM)

$19.557

7.2%

8.7%

19.7

Progressive Waste

$2.730

3.7%

9.1%

36.9

Source:  Capital IQ

Over the past 12 months, clearly Canada’s entry to the group has not fared well based on this metric.  This dynamic has been reflected in the stock’s year to date performance relative to the rest of the group.  With a gain of 9.4% BIN lags the rest of group average return of 21%.

Progressive has been plagued by volume issues in recent times, however, a corner may have turned.  The company reported positive results for the second quarter and raised FCF guidance for 2013 to a range of $211-$225 million.  The mid-point of this range represents a FCF margin of 10.8% based on sales over the past 12 months and a forward FCF multiple of 12.5.  Both metrics appear far better in the context of the group compared to BIN’s current showing.

The Foolish Bottom Line

Waste Connections appears to have been the best performer over the past 5 years based on its FCF margins.  And indeed, WCN’s stock is up 74% over this period.  The rest of the group has averaged a return of just 10% over the past 5 years.  A high FCF margin has translated to a great return for Waste Connections, and if Progressive can follow through with its guidance and boost this metric into the double digits, shareholders are likely to benefit.

For 3 more businesses that are no stranger to producing gobs of free cash click here now to download the Motley Fool’s special FREE report “3 U.S. Companies That Every Canadian Should Own”.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.

Follow us on Twitter and Facebook for the latest in Foolish investing.

Fool contributor Iain Butler does not own shares in any companies mentioned at this time.  The Motley Fool owns shares of Waste Management.     

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

money cash dividends
Stocks for Beginners

Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

If you're looking for cheap stocks, these three have a huge future ahead of them, all while costing far less…

Read more »