Waste Connections (TSX:WCN) is one of the top-performing TSX stocks this year, with returns of over 25%. Its solid quarterly performances, continued acquisitions, and raising of its 2024 guidance have raised investors’ confidence, driving its stock price. Despite the last week’s volatility, the company trades just 1.8% lower compared to its 52-week high. Let’s assess whether the uptrend could continue by looking at its second-quarter performance and growth prospects.
Waste Connections’s Q2 performance
In the second quarter that ended on June 30, Waste Connections posted revenue of $2.3 billion, representing an 11.2% increase from the previous year’s quarter. Solid execution, incremental acquisitions, and higher commodity values drove its top line. Its solid waste core pricing of 7% overcame a 2.8% volume decline to drive organic growth. However, quarter-over-quarter, volumes were up 100 basis points. Meanwhile, the revenue from recycled commodities, landfill gas, and renewable energy credits was 40% higher than the previous year’s quarter.
Further, WCN’s adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) rose 16.4% to $731.8 million amid top-line growth and margin expansion. Its adjusted EBITDA margin expanded by 150 basis points to 32.6% amid favourable commodity prices, accretive acquisitions, and a reduction in third-party expenses. Further, its adjusted EPS (earnings per share) stood at $1.24, representing a 21.6% year-over-year increase.
Moreover, the company generated $611.4 million of cash from its operating activities, with an adjusted free cash flow of $402.6 million. It closed the quarter with liquidity of $1.3 billion. Despite outlaying $1.5 billion on acquisitions during the quarter, its debt-to-adjusted EBITDA ratio stands at a healthy 2.7. So, the company is well-equipped to support its growth prospects.
Waste Connections’s growth prospects
The uptrend in WCN’s financials could continue, given its solid underlying business and healthy growth prospects. The waste management company continues to expand its footprint by acquiring facilities in its existing markets and state-of-the-art recycling facilities in the Pacific Northwest this year. It has made 18 acquisitions year-to-date, which can contribute around $500 million to its annualized revenue.
The company’s management also expects its M&A (merger and acquisition) activities to continue in the second half of this year, boosting its financials. So, management hopes the contribution from acquisitions will reach $700 million by the end of this year.
Investors’ takeaway
Moreover, WCN has a solid developmental pipeline of renewable natural gas and resource recovery facilities, with management expecting three of these facilities to become operational in the third quarter. The company also invests in technology to enhance the customer experience and drive operational efficiency. Amid these growth initiatives and solid Q2 performance, WCN’s management has raised its 2024 guidance. Management’s new guidance projects 10.3% and 15% growth in its 2024 revenue and adjusted EBITDA, respectively.
The substantial increase in WCN’s stock price has also raised its valuation, with the company currently trading at 5.1 and 35.5 times analysts projected sales and earnings, respectively, for the next four quarters. Although its valuation looks expensive, investors are ready to pay the premium given its solid financials and growth prospects. Besides, WCN has rewarded its shareholders by raising its dividends at an annualized rate of 14% since 2010. Considering all these factors, I believe WCN would be an excellent buy despite the volatile environment.
