This Canadian Company Entered a Trillion-Dollar Market Last Month

GFL Environmental Inc.’s (TSX:GFL)(NYSE:GFL) renewable energy platform opens up a trillion-dollar opportunity.

| More on:
Profit dial turned up to maximum

Image source: Getty Images

Canadian companies have become more aggressive in their growth strategies. Over the past few years, many of Canada’s largest firms have raised record levels of cash, pulled off ambitious acquisitions, and launched new products to enter global markets. One such recent growth venture is GFL Environmental’s (TSX:GFL)(NYSE:GFL) renewable energy platform. 

GFL is one of Canada’s largest waste management companies; it went public just over a year ago. Since then, the underlying business has been firing on all cylinders while the stock is up over 105%. Now, the management team wants to enter the trillion-dollar renewable energy sector via an interesting niche. Here’s a closer look. 

GFL’s renewable energy platform

GFL recently sold some non-core assets and raised over $60 million in funds to deploy in a new renewable energy platform. The plan is to generate renewable natural gas (RNG) from landfills. The team intends to start operations at 18 landfills initially before expanding the program. 

CEO Patrick Dovigi believes this new platform could soon generate over $100 million in annual free cash flow. Considering that other companies in this industry are valued at between 25 to 30 times free cash flow, this renewable venture could be worth $3 billion in shareholder value. 

The transition to renewable energy across the world is worth over $2 trillion over the next few decades, so this new venture opens an immense growth opportunity for GFL. 

GFL stock valuation

Besides the new renewable energy play, there’s a lot to be excited about with GFL. The company recently reported better-than-expected second-quarter results. Management believes annual free cash flow could surpass $510 million in 2021 and perhaps $800 million by 2023. 

That means the stock is currently trading at 28 times current free cash flow and 18 times future cash flows. That’s not bad for a company growing at roughly 5% a year. 

The fact that GFL’s core business model is recession-proof makes it even more appealing. Waste management is a service that is disconnected from the economy. Local governments and municipalities sign long-term contracts with waste haulers that gives them several years of revenue visibility. Also, demand for waste management doesn’t decline during recessions or health crises. 

That’s why GFL stock kept climbing steadily throughout 2020 and 2021, despite the health scare and lockdown. This resilience is what makes GFL an ideal pick for investors seeking a safe haven

Bottom line

GFL’s renewable energy venture could be worth $3 billion eventually, but it opens up a trillion-dollar market for the company. The stock has doubled over the past year, as underlying operations grow steadily and remain as profitable as ever. 

GFL stock is currently trading at 28 times free cash flow, which is a fair price to pay. The management team is confident of boosting cash flow through organic growth and the new renewable energy platform. This could be the ideal stock for investors seeking a safe haven. Keep an eye on it. 

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.

The Motley Fool has no position in any of the stocks mentioned. Fool contributor Vishesh Raisinghani has no position in any of the stocks mentioned.

More on Investing

Plane on runway, aircraft
Stocks for Beginners

Up 53% From its 52-Week Low, Is Cargojet Stock Still a Buy?

Cargojet (TSX:CJT) stock is up a whopping 53%, nearing closer to 52-week highs from 52-week lows, so what's next for…

Read more »

Question marks in a pile
Bank Stocks

Should You Buy Canadian Western Bank for its 4.8% Dividend Yield?

Down 35% from all-time highs, Canadian Western Bank offers a tasty dividend yield of 4.8%. Is the TSX bank stock…

Read more »

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

tsx today
Stock Market

TSX Today: Why Record-Breaking Rally Could Extend on Thursday, March 28

The main TSX index closed above the 22,000 level for the first time yesterday and remains on track to post…

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Growth Stocks I’m Buying in April

These three growth stocks are up in the last year, and that is likely to continue on as we keep…

Read more »