The Waste Removal Services industry is observing positive trends in government regulations, the implementation of advanced technologies and a rising awareness of environmental issues. The industry does not halt rapid industrialization and urbanization despite the increasing operating expenses. Better waste collection methods and rising volumes of waste in emerging markets can lead to expanding the global waste management sector.
Republic Services, Inc. RSG, Waste Connections, Inc. WCN and Waste Management, Inc. WM are three stocks that look promising in the waste removal services market.
About the Industry
Companies in the Zacks Waste Removal Services industry play a vital role in the collection, treatment and responsible management of diverse waste types, aiming to minimize their impacts on the environment and public health. This market is categorized into distinct segments based on the kind of waste, including industrial, commercial, domestic and agricultural. The industrial waste segment has gained significance due to the ongoing industrial expansion, creating a substantial demand for efficient waste management solutions. The market encompasses Collection and Disposal services. The disposal services segment, primarily fueled by the growing need for waste recycling to mitigate environmental impacts, stands as the primary revenue-generating category.
What's Shaping the Future of the Business Services Industry?
Rising Importance of Meeting Environmental, Social, & Governance (“ESG”) Goals: Waste management is a cornerstone of ESG principles, as it helps organizations augment their ESG ratings by promoting environmental sustainability, resulting in social well-being and upholding good governance. Per Grand View Research, the average ESG disclosure score for the waste management industry is between 50-60%. Embracing responsible waste management meets legal requirements, and aligns with consumer and investor desires for sustainable and ethical business practices. In the current scenario, waste management is not only a duty but also a chance for businesses to display their dedication to ESG values, which allows them to sustain long-term success.
Waste Management Industry Grows on the Back of Technological Advancements: Technology has become a crucial element in waste management, dealing with the challenges of waste generation and environmental impacts. This transformative correlation promises a more sustainable future. For instance, AI is emerging as a powerful tool to sort waste and keep recyclable materials from going into landfills. Advancements in technology result in more effective, eco-friendly waste management, reducing the ecological footprint and advancing sustainability. Technology can help deal with waste challenges that lead us to responsible waste management.
Advancements in Waste-to-Energy (“WTE”) Technology: WTE comprises thermal (pyrolysis, incineration and gasification) and biological solutions (composting and anaerobic digestion), which play an important role in sustainable waste management. This technology transforms waste into energy via methods such as incineration or gasification. Per a report by Mordor Intelligence, the Waste-to-Energy Market size is expected to be $38.4 billion in 2024 and reach $65.3 billion by 2029, seeing a CAGR of 11.2%. The surge is anticipated to be led by the rise in the amount of waste generation, growing waste management concerns to meet sustainable living standards and increased focus on non-fossil fuel. In this era of clean energy, the industry holds a crucial position in offering a renewable energy source and addressing the rising hindrances around waste management.
Increasing Operating Expenses Act as Headwinds: Waste management is time-consuming and complex. It demands higher capital and operating costs to operate waste collection vehicles, bins, processing equipment, and a huge number of workers. Operational expenses as such are anticipated to keep the bottom line of the companies under pressure.
Zacks Industry Rank Indicates Dull Near-Term Prospects
The Zacks Waste Removal Services industry, which is housed within the Zacks Business Services sector, currently carries a Zacks Industry Rank #170. This rank places it in the bottom 32% of 249 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates a continued outperformance in the near term. Our research shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock market performance and current valuation.
Industry Underperforms Sector & S&P 500
The Zacks Waste Removal Services industry has underperformed the broader sector and the S&P 500 over the past year.
The industry has gained 17% compared with 20.4% growth of the broader sector. The Zacks S&P 500 composite has risen 26.3% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
Based on EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization), which is commonly used for valuing waste removal services stocks because of their high debt levels, the industry is currently trading at 12.68X compared with the S&P 500’s 18.3X and the sector’s 24.19X.
Over the past five years, the industry has traded as high as 13.91X and as low as 12.18X, the median being 13.22X, as the charts below show.
EV-to-EBITDA
3 Waste Removal Services Stocks to Keep a Close Eye on
Below, we have presented three stocks that are anticipated to grow in the near term.
Republic Services: This environmental service provider’s top line is benefiting from its focus on delivering top-notch essential services that are continuing to support organic growth and improve customer loyalty. Strong prices across the business are driving organic revenue growth.
The company is advancing the implementation of digital tools to enhance the experience of customers and employees. RSG’s MPower is increasing the productivity of maintenance technicians and improving warranty recovery. The company expects to deliver $20 million in annual cost savings after the complete implementation by the end of 2025. Sustainability innovation investments in plastic circularity and renewal natural gas positions the company to grow and create long-term value creation.
RSG has 28 electric collection vehicles in operation and is anticipating more than 50 EVs in its fleet by the end of 2024. The company has 18 facilities with commercial-scale EV charging infrastructure, which reflects RSG’s commitment to fleet electrification.
The Zacks Consensus Estimate for the company’s 2024 EPS has been revised 1.1% upward over the past 60 days. Earnings are anticipated to increase 11.4% year over year in 2024. Shares of Republic Services have gained 27.7% over the past year. The company currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Waste Connections: This company is a non-hazardous waste collection, transfer, disposal and resource recovery services provider in the United States and Canada.
RSG is focusing on solid waste with a market selection strategy and track record for integrating and maximizing value. The company’s differentiated growth strategy and acquisition activity, coupled with the rising return of capital to shareholders, are leading to strengthening its operating performance and free cash flow generation.
Rising landfill gas revenues are being driven by higher volumes and value for renewable energy credits or Renewable Identification Numbers. The company expects to incorporate innovative approaches to drive continuous improvement in employee engagement and retention in 2025, and expand its margins in solid waste collection, transfer and disposal.
WCN has a Zacks Rank #3 at present. The Zacks Consensus Estimate for the company’s 2024 EPS has been revised marginally upward over the past 60 days. Earnings are anticipated to grow 15.5% year over year in 2024. Shares of Waste Connections have gained 19% over the past year.
Waste Management: This company is an environmental solutions provider to residential, commercial, industrial and municipal customers in the United States and Canada.
The company’s efforts to optimize cost and discipline pricing programs are increasing the spread between price growth, cost to serve and sustainability investment. RSG has completed 24 of the 39 projects in the growth program that have added 1.5 million tons of annual recycling capability across North America. The company’s automated recycling facilities are delivering lower labor costs per ton and higher blended value on its commodity sales compared with RSG’s legacy plants, as well as better margins.
The acquisition of Stericycle is expected to provide a complementary medical waste platform to its business and expand its suite service offerings.
WM has a Zacks Rank #3 at present. The Zacks Consensus Estimate for the company’s 2024 EPS has been revised 1.9% upward over the past 60 days. Earnings are anticipated to grow 18.3% year over year in 2024. Shares of Waste Connections have gained 17.9% over the past year.
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