Canadian equity markets have staged a strong recovery from their March lows, supported by easing geopolitical tensions, solid corporate earnings, and a favourable commodity-price environment. Reflecting this strength, the S&P/TSX Composite Index has climbed 13.2% from its March low and recently reached a new record high.
However, not all stocks have participated in the rally. Waste Connections (TSX: WCN) remains under pressure, currently trading 18.2% below its 52-week high. Investor sentiment has been weighed down by several near-term challenges, including weaker recycled commodity prices, softer waste volumes, lower contributions from renewable energy credits, and delays in reopening the Chiquita Canyon landfill.
With the stock lagging the broader market, the recent pullback may present an opportunity for long-term investors. Let’s take a closer look at Waste Connections’s business outlook, recent financial performance, growth prospects, and valuation to assess whether the stock is an attractive buy at current levels.
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WCN’s first-quarter performance
Waste Connections is a leading non-hazardous waste management company serving customers across the United States and Canada. The company operates primarily in secondary and exclusive markets, where competition is generally less intense, allowing it to maintain strong pricing power and industry-leading margins.
In its recently reported first-quarter results, revenue increased 6.4% year over year to US$2.4 billion, driven by both organic growth and contributions from acquisitions completed over the past four quarters. Organic growth benefited from a 6% increase in core pricing, while acquisitions, net of divestitures, contributed approximately US$55 million in additional revenue.
Although reported net income declined 9.2% to US$219.3 million due to impairment charges related to adjustments in landfill closure and post-closure costs, the company’s underlying performance remained strong. Excluding one-time and non-cash items, adjusted earnings per share (EPS) rose 8.9% year over year to US$1.23.
Operational performance also improved, with adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) increasing 8% to US$769.5 million. Meanwhile, adjusted EBITDA margin expanded by 50 basis points to 32.5%, reflecting enhanced operating efficiency. Improved employee engagement and record safety performance helped reduce voluntary employee turnover to below 10%, while ongoing investments in technology and automation continued to support productivity gains and margin expansion.
Waste Connections also maintains a strong balance sheet, ending the quarter with approximately US$1 billion in liquidity and a net debt-to-EBITDA ratio of 2.8. Given its healthy financial position and robust cash-flow generation, the company appears well-equipped to fund future growth initiatives. Let’s now take a closer look at its long-term growth prospects.
WCN’s growth prospects
Waste Connections has built its growth strategy around a combination of organic expansion and disciplined acquisitions. In addition to strengthening its core operations, the company is investing in renewable natural gas (RNG) projects to diversify its revenue streams and enhance long-term profitability. After bringing six RNG facilities into service, Waste Connections is currently constructing six additional facilities, which could become operational by the end of this year.
The company also remains committed to pursuing strategic acquisitions. Supported by strong cash-flow generation and a healthy balance sheet, management expects acquisition activity to remain above historical averages this year. Waste Connections has identified a robust pipeline of potential transactions representing approximately US$100 million in annualized revenue and anticipates completing many of these deals during the second and third quarters.
Beyond expansion initiatives, the company continues to invest in technological developments and artificial intelligence (AI) to improve operational efficiency and profitability. Greater use of AI can enhance pricing strategies, strengthen customer engagement, and optimize asset utilization. At the same time, improving employee retention and reducing turnover should support productivity gains and margin expansion.
Given its disciplined growth strategy, strong financial position, and ongoing operational improvements, Waste Connections appears well-positioned to deliver sustainable long-term growth and shareholder value.
Investors’ takeaway
Following the recent pullback, Waste Connections’ valuation has become more attractive, with the stock trading at a next-12-month price-to-sales multiple of 3.9 and a forward price-to-earnings ratio of 27.6. While not deeply discounted, these valuation metrics appear reasonable given the company’s resilient business model, strong margin profile, and long-term growth prospects.
The company has also demonstrated a strong commitment to returning capital to shareholders, increasing its dividend at a double-digit annual rate for the past 15 years. Although its current dividend yield of 0.65% is modest, the consistent growth of those payouts reflects management’s confidence in the business and its cash-flow-generating capabilities.
Given the essential nature of its services, disciplined expansion strategy, solid financial position, and improving valuation following the recent decline, I believe Waste Connections would be an excellent buy for long-term investors at current levels.
