GFL Environmental Inc

GFL Environmental Inc (TSX: GFL) is a diversified environmental services company in North America, offering non-hazardous solid waste management, infrastructure & soil remediation, and liquid waste management services throughout Canada and in 27 states in the United States.

Why Should Investors Book Profit?

• Lower operating margins V/s Industry: In Q2 2021, the Company failed on maintaining its pace and witnessed lower performance across operating matrix and ROE against the industry, which exhibits the pressure on company.

• Increase in Leverage: The company’s long-term debt surged to CAD 6,520.9 million in Q2 2021, against CAD 6,161.5 million in Q2 2020. Its cost of debt also increased to 2.1% from 1.4%. Furthermore, the debt-to-equity ratio at the end of the June 2021 stood at 1.25x higher than 1.19x reported at the end of the March 2021 quarter and higher than the industry median of 0.70x. This implies higher balance sheet risks.

• Stretched Valuation: GFL shares are available at an NTM EV/Sales multiple of 3.7x compared to the industry (Professional & Commercial Services) median of 2.3x. This implies that the shares are overvalued against the industry. The matrix below reflects that the company is overvalued against the industry on many multiples.

• Trading near the upper band of the Bollinger Bands®: Recently, the stock witnessed a healthy rally on the daily price chart and has moved close to the upper band of the Bollinger band, indicating the stock is perhaps overbought and due for a price correction or a consolidation.

Technical Price Chart, Source: REFINITIV, Analysis by Kalkine

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

Despite a challenging environment the company delivered a strong revenue growth of 32.3% to CAD 1,314.3 million. The increase was predominantly attributable to the impact of acquisitions. However, the group’s long-term debt surged along with an increased cost of debt and higher debt to equity ratio against the industry raises serious concerns. It also witnessed lower performance across operating matrix and ROE against the industry, which exhibits the pressure on company. Moreover, the stock is trading on the stretched valuations. Therefore, based on the above rationale and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 43.99 on August 6, 2021.

One-Year Technical Price Chart (as on August 06, 2021). Source: REFINITIV, Analysis by Kalkine Group

Mainstreet Equity Corp.

Mainstreet Equity Corp. (TSX: MEQ), is a Canada-based real estate company, which is focused on the acquisition, redevelopment, repositioning, and management of mid-market rental apartment buildings. 

Why Should Investors Book Profit?

• Stretched Valuation: MEQ shares are available at an NTM EV/Sales multiple of 25.3x compared to the industry (Real Estate operations) median of 11.9x. This implies that MEQ shares are highly overvalued against the industry.

• Increase in Leverage: The company’s debt to equity ratio at the end of the June 2021 stood at 1.23x higher than the industry median of 0.71x. This implies higher balance sheet risks. Additionally, it’s Net Debt/EBITDA ratio stood at 57.3x whereas industry median is of 8.93x.

• Poor Liquidity Profile: In Q3 2021, the company's current ratio was 0.08x, compared to the industry median of 1.38x. The ratio fell from the previous quarter, indicating that the company's short-term obligations are growing faster than its resources to cover them, which is not a good indication.

• Trading above the upper band of the Bollinger Bands®: Recently, the stock witnessed a healthy rally on the daily price chart and now it has moved above the upper band of the Bollinger band, indicating the stock is perhaps overbought and due for a price correction or a consolidation. Furthermore, the momentum oscillator RSI (14-Period) is trading at ~77.35 levels, which also indicates that the stock is in overbought zone and there is a possibility of price consolidation.

Technical Price Chart, Source: REFINITIV, Analysis by Kalkine

Valuation Methodology (Illustrative): EV to EBITDA

Stock recommendation

Despite strong financial performance, COVID-19 limitations have impacted Mainstreet on a number of fronts, severely affecting expenses and revenues. The temporary closing of Canada's border has put a stop to the influx of international and domestic students and immigrants. Furthermore, the company's liquidity profile is weak, with increased debt, which is not a good indication. Additionally, the stock is trading on the stretched valuations against the industry. Therefore, based on the above rationale, and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 113.32 on August 6, 2021.

One-Year Technical Price Chart (as on August 06, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.