Waste Connections Inc.

Waste Connections Inc. (TSX: WCN) is the third-largest integrated provider of traditional solid waste and recycling services in North America, which operates 86 active landfills, 124 transfer stations, and 66 recycling operations. The firm serves residential, commercial, industrial, and energy end markets. 

Why Should Investors Book Profit?

• Lower assets turnover ratio: The company is having a lower assets turnover ratio, which stood at 0.11 in Q2 2021, against the industry median of 0.19. A low asset turnover ratio indicates that the company is failing to efficiently employ its assets to generate sales.
• Stretched valuation: WCN shares are available at an NTM EV/EBITDA multiple of 19.11x compared to the industry (Professional & Commercial Services) median of 11.0x. This implies that the shares are overvalued against the industry. The stock is overvalued on multiple valuation parameters. The table below reflects the picture.

• Trading above the upper band of the Bollinger Bands®: Recently, the stock witnessed a healthy rally on the daily price chart and 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 stock may also face the resistance at the rising trend line, where it is currently trading.

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): EV to EBITDA 

Stock recommendation

On the back of continued improvement in solid waste pricing and volume growth, and strength in recovered commodity values, the company posted healthy financial numbers in Q2 2021 and has raised its outlook. But it is commanding lower asset turnover ratio against the industry median indicating that the company is failing to efficiently employ its assets to generate sales. Furthermore, the stock is trading on highly stretched valuation against the industry median. Moreover, the technical indicator suggests that stock is perhaps overbought and due for a price correction or a consolidation. Therefore, based on the above rationale and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 166.18 on September 08, 2021. 

Westshore Terminals Investment Corp.

Westshore Terminals Investment Corporation (TSX: WTE) is a Canada-based company, which owns the Westshore Terminals Limited Partnership. The company operates a coal storage and loading terminal at Roberts Bank, British Columbia, and revenue is derived from rates charged for loading coal onto seagoing vessels.

Why Should Investors Book Profit? 

• Slippages in tonnage shipped and coal loading revenue: Tonnage delivered in Q2 2021 was 6.9 million tonnes, down from 7.7 million tonnes in Q2 2020. Additionally, coal loading income fell by 16.5% to CAD 76.8 million in Q2 2021, down from CAD 92.0 million in Q2 2020.
• Continuous declining operating margin profile: The company is witnessing a continuous declining trend under its operating matrix on the sequential basis, which exhibits the pressure on the company.

• Stretched valuation: WTE shares are available at an NTM Price/Earnings multiple of 19.1x compared to the industry (Transport Infrastructure) median of 15.2x. This implies that the shares are overvalued against the industry. The stock is overvalued on multiple valuation parameters. The table below reflects the picture.

• Trading above the upper band of the Bollinger Bands®: Recently, the stock witnessed a healthy rally on the daily price chart and 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 ~76.53 levels, which also indicates that the stock is in overbought zone and there is a deep possibility of price consolidation or correction.

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): Price to Earnings 

Stock recommendation: The Corporation's cash inflows are totally reliant on Westshore's operational outcomes. The amount and kind of coal delivered through the terminal has an impact on them. The firm just reported decreased tonnage transported and lower coal loading revenue, which is not a good indication. Furthermore, the company's operating margins are declining sequentially, and it has greater average inventory days, both of which might have a negative influence on cash flows. Additionally, the technical indicators are pointing to a possible price correction or consolidation. As a result, we recommend a “Sell” rating on the stock at the closing price of CAD 25.39 on September 8, 2021, based on the above rationale and valuation.

*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.