Stifel Tosses Casella Waste On Labor, Site Headwinds

Casella Waste Systems Inc. (NASDAQ: CWST) missed bottom-line estimates last week and suffered a 6-percent plunge in share price. The stock recovered its losses and then some, but one Wall Street firm tossed the trash company to the side.

The Rating

Stifel Nicolaus analyst Michael Hoffman downgraded Casella from Buy to Hold and raised the price target from $28 to $30.

The Thesis

By Stifel’s analysis, Casella is on pace to beat its 2021 free cash flow goal by at least a year. Although challenged by labor and competitive industry wages, the company could drive growth through multiple permit expansions, Hoffman said in the downgrade note. (See the analyst's track record here.) 

“Like its peers, solid waste is very good and for CWST it is benefiting from tight disposal capacity, which is driving good collection and disposal price leverage,” the analyst said. “Even the organics and customer solutions segments are producing good sales growth and margins.”

Given robust sales growth through the second quarter on slightly decreased margins, Stifel raised its 2018 sales forecast from $632 million to $640 million and marginally increased its estimates for free cash flow and adjusted earnings before interest, tax, depreciation and amortization.

The recycling business is seen to suffer $3-million to $4-million EBITDA pressure as the specialist fee offsets rising costs and lower commodity prices, Hoffman said. Yet many of Casella’s legacy third-party tip fee agreements will expire next year, at which time, with level commodity prices, recycling could become a tailwind, he said. 

In 2019, the closure of Casella’s Southbridge site is seen to create a $6-million EBITDA headwind.

Price Action

Casella shares were slipping 2.89 pecent to $27.55 at the time of publication Monday. 

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