The stock of Waste Connections (NYSE:WCN, 30-year Financials) gives every indication of being fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $108.77 per share and the market cap of $28.5 billion, Waste Connections stock is believed to be fairly valued. GF Value for Waste Connections is shown in the chart below.
Because Waste Connections is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 5.6% over the past three years and is estimated to grow 12.84% annually over the next three to five years.
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Waste Connections has a cash-to-debt ratio of 0.13, which is worse than 83% of the companies in Waste Management industry. The overall financial strength of Waste Connections is 5 out of 10, which indicates that the financial strength of Waste Connections is fair. This is the debt and cash of Waste Connections over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Waste Connections has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $5.4 billion and earnings of $0.78 a share. Its operating margin of 16.14% better than 71% of the companies in Waste Management industry. Overall, GuruFocus ranks Waste Connections's profitability as fair. This is the revenue and net income of Waste Connections over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Waste Connections's 3-year average revenue growth rate is in the middle range of the companies in Waste Management industry. Waste Connections's 3-year average EBITDA growth rate is -2.6%, which ranks worse than 74% of the companies in Waste Management industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Waste Connections's return on invested capital is 5.56, and its cost of capital is 4.83. The historical ROIC vs WACC comparison of Waste Connections is shown below:
In short, the stock of Waste Connections (NYSE:WCN, 30-year Financials) gives every indication of being fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 74% of the companies in Waste Management industry. To learn more about Waste Connections stock, you can check out its 30-year Financials here.
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