Canadian equity markets have rebounded strongly from their March lows, with the S&P/TSX Composite Index climbing 9.6%. However, some Canadian stocks have lagged the broader market recovery and continue to trade significantly below their 52-week highs. One such stock is Waste Connections (TSX: WCN), which remains down roughly 24.5% from its 52-week high.
Weaker recycled commodity prices, lower contributions from landfill-gas renewable energy credits, softer waste volumes, and delays in reopening the Chiquita Canyon landfill have weighed on investor sentiment, dragging the company’s stock lower. Against this backdrop, let’s examine the company’s recent first-quarter performance, long-term growth prospects, and valuation to determine whether the recent pullback offers an attractive buying opportunity.
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WCN’s first-quarter performance
Last month, Waste Connections reported a solid first-quarter performance, with revenue rising 6.4% year over year to US$2.37 billion, exceeding management’s guidance. Revenue growth was supported by US$55 million in contributions from acquisitions, net of divestitures, along with 3.1% organic growth in its solid waste collection, transfer, and disposal business. A 6% increase in core pricing contributed to its organic growth.
Despite higher revenue, the company’s net income declined from US$241.5 million to US$219.3 million, primarily due to impairment charges related to adjustments in landfill closure and post-closure costs. Excluding these one-time items, adjusted net income came in at US$314.9 million, or US$1.23 per diluted share, with adjusted earnings per share (EPS) increasing 8.8% year over year. Meanwhile, adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) rose 8% to US$769.5 million, while the adjusted EBITDA margin improved by 50 basis points to 32.5%.
Waste Connections also continues to make progress on operational efficiency. Employee voluntary turnover declined to below 10%, supported by improved employee engagement and record safety performance. In addition, the company’s ongoing investments in technology and automation have helped drive margin expansion and improve overall operating efficiency.
With approximately US$1 billion in liquidity and a net debt-to-EBITDA ratio of 2.75, Waste Connections maintains a solid financial position that should support its ongoing expansion initiatives and long-term growth plans. Let’s now examine the company’s future growth prospects.
WCN’s growth prospects
Waste Connections continues to pursue growth through a combination of organic expansion and strategic acquisitions. During the first quarter, one of its renewable natural gas (RNG) facilities became operational, bringing its total number of active RNG facilities to six. Management also expects an additional six facilities to come online by the end of this year, which could further strengthen revenue growth and cash flow generation.
The company has also positioned itself for an active year on the acquisition front. Management expects above-average acquisition activity, supported by a strong pipeline of deals that could generate approximately $100 million in annualized revenue. The management expects to close these transactions by the end of this quarter or early next quarter.
In addition, Waste Connections continues to expand its use of technology and artificial intelligence (AI) to improve operating efficiency and profitability. Its investments in AI-driven initiatives have enhanced pricing effectiveness, customer engagement, and asset optimization. Meanwhile, improving employee retention and lower turnover levels could further support margin expansion in the coming quarters. Considering these growth initiatives and operational improvements, the company’s long-term outlook appears encouraging.
Investors’ takeaway
Following the recent pullback, Waste Connections’s valuation has moderated, with the stock currently trading at 3.8 times analysts’ projected sales and 26.9 times projected earnings over the next four quarters. While these valuation multiples may still appear elevated, I believe they are warranted given the company’s strong execution, resilient business model, and visible long-term growth opportunities.
Waste Connections has also increased its dividend at a double-digit annual rate over the past 15 years, and it currently yields 1.28% on a forward basis. Supported by healthy cash flows, operational efficiency, and solid expansion prospects, the recent correction appears to present a compelling entry point for long-term investors.
