In A Recession, These Waste Management Stocks Have Outperformed S&P500 Historically

Seaport Research Partners analyst John Mazzoni initiated coverage on several major waste management companies with a Buy rating.

The analyst writes that Environmental Services companies present a compelling investment case due to their resilient business models, dependable recurring revenue, and significant barriers to entry.

Historically, this sector has outperformed the S&P 500 by an average of approximately 10% across the past 16 market corrections, with an impressive success rate of around 75%, adds the analyst.

GFL Environmental Inc. GFL: The analyst initiated coverage with a price forecast of $58.

Mazzoni writes that the company is led by Founder and CEO Patrick Dovigi, who, at 45, is the youngest CEO within the coverage.

This offers the benefit of potential long-term leadership continuity, mitigating succession risks, adds the analyst.

Also Read: GFL Environmental To Sell Stake In Environmental Services Business: Debt Reduction & Stock Buyback On The Cards

Further, Mazzoni says that founder-led companies often exhibit more aggressive growth strategies and tend to outperform those led by non-founders, suggesting a potential advantage for GFL.

On May 1, the company reported a first-quarter EPS of $(0.06), which fell short of the $0.04 estimate and sales of $1.09 billion, exceeded the estimated $1.07 billion.

Republic Services, Inc. RSG: Mazzoni started coverage with a price forecast of $270.

The analyst says that stock performance has significantly improved under the leadership of Jon Vander Ark (JVA), who assumed the CEO role in 2021 after serving as COO since 2018.

The analyst writes that their market analysis indicates that Republic Services currently captures less than 10% of the substantial Environmental Services Total Addressable Market (TAM).

Mazzoni anticipates that technology will play a key role in driving further margin expansion within the Environmental Services sector.

This is expected to be achieved through advancements in areas such as optimized routing, automated notifications, dynamic scheduling, enhanced self-service options for customers, improved collection efficiency, and ultimately, greater customer lifetime value resulting from increased service quality, adds the analyst.

On April 25, the company reported first-quarter adjusted EPS of $1.58, which surpassed the consensus estimate of $1.53 and sales of $4.01 billion, slightly missing the estimated $4.05 billion.

Waste Connections, Inc. WCN: The analyst initiated coverage with a $220 price forecast.

The company has historically been recognized as the top operator in the Environmental Services industry and currently holds the third-largest market share, says the analyst.

The analyst adds that the stock experienced a decline following an unforeseen event at the Chiquita Canyon landfill (ETLF).

Nevertheless, Mazzoni writes that the positive development is the landfill’s closure in January 2025, which he believes will lead to decreasing headwinds on free cash flow (FCF) moving forward.

The analyst sees a potential mergers and acquisitions (M&A) pipeline of approximately $4 billion to $5 billion that aligns well with Waste Connections’ existing operations, primarily concentrated in the solid waste sector.

On April 24, the company reported first-quarter adjusted EPS of $1.13, which exceeded the consensus estimate of $1.10 and sales reached $2.23 billion beating the estimated $2.22 billion.

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