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.
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.
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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.