Waste Connections Inc.’s Adjusted EPS Soars 26.3% in 2017: Time to Buy?

Waste Connections Inc. (TSX:WCN)(NYSE:WCN) fell 0.55% on Thursday, despite very strong Q4 2017 earnings results. Is now the time to buy?

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Waste Connections Inc. (TSX:WCN)(NYSE:WCN), one of the largest integrated solid waste services companies in Canada and the United States, released its fiscal 2017 fourth-quarter and full-year earnings results after the market closed on Wednesday, and its stock responded by falling 0.55% in Thursday’s trading session. Let’s break down the earnings results and the fundamentals of its stock to determine if we should be long-term buyers today.

The impressive earnings results

Here’s a quick breakdown of five of the most notable statistics from Waste Connections’s three-month period ended on December 31, 2017, compared with the same period in 2016:

Metric Q4 2017 Q4 2016 Change
Total Revenue US$1,157.18 million US$1,048.62 million 10.4%
Adjusted EBITDA US$360.70 million US$325.45 million 10.8%
Adjusted net income US$137.05 million US$120.29 million 13.9%
Adjusted net income per share (EPS) US$0.52 US$0.46 13.0%
Adjusted free cash flow US$149.86 million US$110.68 million 35.4%

And here’s a quick breakdown of five notable statistics from Waste Connections’s 12-month period ended on December 31, 2017, compared with the same period in 2016:

Metric Fiscal 2017 Fiscal 2016 Change
Total Revenue US$4,630.49 million US$3,375.86 million 37.2%
Adjusted EBITDA US$1,460.53 million US$1,071.09 million 36.4%
Adjusted net income US$570.67 million US$395.18 million 44.4%
Adjusted EPS US$2.16 US$1.71 26.3%
Adjusted free cash flow US$763.89 million US$550.94 million 38.7%

Outlook on 2018

In the press release, Waste Connections provided its outlook on fiscal 2018; here’s a breakdown of what the company expects to accomplish:

  • Revenues of approximately US$4.825 billion
  • Net income of approximately US$570 million
  • Adjusted EBITDA of approximately US$1.55 billion, or approximately 32.1% of revenue
  • Net cash provided by operating activities of approximately US$1.35 billion, or approximately 28.0% of revenue
  • Adjusted free cash flow of approximately US$850 million, or approximately 17.6% of revenue

Is now the time to buy?

Waste Connections’s fourth quarter was outstanding, and it capped off a year to remember, as it achieved double-digit percentage growth across all of its key financial metrics; its outlook on 2018 is also very positive, so I think its stock should have responded by soaring, and I think it represents a very attractive long-term investment opportunity today for two fundamental reasons.

First, it’s undervalued based on its growth. Waste Connections’s stock currently trades at 31.9 times fiscal 2017’s adjusted EPS of US$2.16 and 28.8 times the consensus EPS estimate of US$2.40 for fiscal 2018, which may seem a bit rich at first glance, but I actually think they are attractive given its aforementioned double-digit growth rates and its estimated 10% long-term earnings-growth rate.

Second, it’s an under-the-radar dividend-growth superstar. Waste Connections currently pays a quarterly dividend of US$0.14 per share, equating to US$0.56 per share annually, which gives it a 0.8% yield; a 0.8% yield isn’t high by any means, but it’s of the utmost importance to note that the waste solutions provider’s 16.7% dividend hike in November has it on track for 2018 to mark the eighth straight year in which it has raised its annual dividend payment, and I think its very strong growth of free cash flow will allow this streak to continue for the foreseeable future.

With all of the information provided above in mind, I think all Foolish investors should consider establishing long-term positions in Waste Connections today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

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