19% Upside Expected For Shares Of Advanced Disposal Services

Andrew Buscaglia of Credit Suisse initiated coverage of Advanced Disposal Services Inc ADSW with an Outperform rating and $24 price target.

According to Buscaglia, investors can expect significant upside potential as the fourth-largest company in the North American waste services sector is set to enter a new phase of growth. Specifically, the company has successfully "carved out its niche" on the Eastern half of the US and is in a position to grow its revenue base significantly on an organic basis and through meaningful acquisitions.

Advanced Disposal initially priced its IPO at $18 per share and the stock began trading this month.

The analyst said M&A activity is "more meaningful" to a smaller company like Advanced Disposal and would be better accretive to its EBITDA compared to peers. Specifically, companies such as haulers are acquired at just 3.5-5.0x post-synergies which represents low risk transactions.

In fact, Buscaglia believes M&A activity can be used to pay down its debt as pure free cash flow generation over the years could result in the company's leverage declining from 4.9x debt-to-EBITDA to 4.1x in 2017 and 3.7x by 2018. Meanwhile, the company is looking to refinance a $550 million 8.25 percent senior unsecured note offering in the near-term as well which could generate as much as $15 million in annual savings.

The analyst noted that Advanced Disposal's stock is trading at 8.3x his 2017 EBITDA estimate which represents a discount to its peer group. Moving forward, multiple expansion is likely as the company pays down its debt and leverage inches closer towards the group average of 3x.

Bottom line, Advanced Disposal already boasts the second highers EBITDA margin profile and can grow its EBITDA faster than its peers through efficencies on the cost line and meaningful M&A opportunities.