Critical Review: Waste Connections (WCN) and Waste Management (WM)

Waste Connections (NYSE: WCN) and Waste Management (NYSE:WM) are both large-cap business services companies, but which is the better business? We will compare the two businesses based on the strength of their earnings, analyst recommendations, dividends, institutional ownership, valuation, profitability and risk.

Profitability

This table compares Waste Connections and Waste Management’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Waste Connections 14.68% 9.68% 4.96%
Waste Management 14.06% 26.73% 7.14%

Analyst Ratings

This is a summary of recent recommendations and price targets for Waste Connections and Waste Management, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Waste Connections 0 1 9 1 3.00
Waste Management 0 1 8 0 2.89

Waste Connections presently has a consensus price target of $80.09, indicating a potential upside of 6.96%. Waste Management has a consensus price target of $90.75, indicating a potential upside of 11.38%. Given Waste Management’s higher possible upside, analysts plainly believe Waste Management is more favorable than Waste Connections.

Volatility & Risk

Waste Connections has a beta of 0.18, meaning that its share price is 82% less volatile than the S&P 500. Comparatively, Waste Management has a beta of 0.7, meaning that its share price is 30% less volatile than the S&P 500.

Institutional & Insider Ownership

83.2% of Waste Connections shares are held by institutional investors. Comparatively, 75.2% of Waste Management shares are held by institutional investors. 0.4% of Waste Connections shares are held by company insiders. Comparatively, 0.3% of Waste Management shares are held by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.

Valuation and Earnings

This table compares Waste Connections and Waste Management’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Waste Connections $4.63 billion 4.26 $576.81 million $2.16 34.67
Waste Management $14.49 billion 2.43 $1.95 billion $3.22 25.30

Waste Management has higher revenue and earnings than Waste Connections. Waste Management is trading at a lower price-to-earnings ratio than Waste Connections, indicating that it is currently the more affordable of the two stocks.

Dividends

Waste Connections pays an annual dividend of $0.56 per share and has a dividend yield of 0.7%. Waste Management pays an annual dividend of $1.86 per share and has a dividend yield of 2.3%. Waste Connections pays out 25.9% of its earnings in the form of a dividend. Waste Management pays out 57.8% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Waste Connections has increased its dividend for 8 consecutive years and Waste Management has increased its dividend for 14 consecutive years. Waste Management is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Waste Connections Company Profile

Waste Connections, Inc., a solid waste services company, provides waste collection, transfer, disposal, and recycling services in the United States and Canada. The company operates through six segments: Southern, Western, Eastern, Canada, Central, and Exploration and Production (E&P). It offers collection services to residential, commercial, municipal, industrial, and E&P customers; landfill disposal services; and recycling services for various recyclable materials, including compost, cardboard, office paper, plastic containers, glass bottles, and ferrous and aluminum metals. The company also owns and operates transfer stations that receive compact and load waste to be transported to landfills or treatment facilities through truck, rail, or barge; and intermodal services for the rail haul movement of cargo and solid waste containers in the Pacific Northwest through a network of intermodal facilities. In addition, it provides E&P waste treatment, recovery, and disposal services for waste resulting from oil and natural gas exploration and production activity, such as drilling fluids, drill cuttings, completion fluids, and flowback water; production wastes and produced water during a well's operating life; contaminated soils that require treatment during site reclamation; and substances that require clean-up after a spill, reserve pit clean-up, or pipeline rupture. Further, the company offers container and chassis sales and leasing services to its customers. As of December 31, 2017, it owned or operated a network of 261 solid waste collection operations; 146 transfer stations; 6 intermodal facilities; 66 recycling operations; 90 active MSW, E&P, and/or non-MSW landfills; 22 E&P liquid waste injection wells; and 19 E&P waste treatment and oil recovery facilities. Waste Connections, Inc. was founded in 1997 and is based in Vaughan, Canada.

Waste Management Company Profile

Waste Management, Inc., through its subsidiaries, provides waste management environmental services to residential, commercial, industrial, and municipal customers in North America. It provides collection services, including picking up and transporting waste and recyclable materials from where it was generated to a transfer station, material recovery facility (MRF), or disposal site; and owns, develops, and operates landfill gas-to-energy facilities in the United States, as well as owns and operates transfer stations. As of December 31, 2017, the company owned or operated 244 solid waste landfills; 5 secure hazardous waste landfills; 90 MRFs; and 305 transfer stations. It also provides materials processing and commodities recycling services; recycling brokerage services, such as managing the marketing of recyclable materials for third parties; and other strategic business solutions. In addition, the company offers construction and remediation services; services related with the disposal of fly ash, and residue generated from the combustion of coal and other fuel stocks; in-plant services comprising full-service waste management solutions and consulting services; and specialized disposal services for oil and gas exploration and production operations. Further, it portable self-storage and long distance moving services; fluorescent bulb and universal waste mail-back services through LampTracker program; portable restroom services under the Port-o-Let name; and street and parking lot sweeping services, as well as holds interests in oil and gas producing properties. The company was formerly known as USA Waste Services, Inc. and changed its name to Waste Management, Inc. in 1998. Waste Management, Inc. was incorporated in 1987 and is headquartered in Houston, Texas.

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