Waste Management, Private Firms See Huge Opportunity In Canada

Includes: CWST, RSG, WM
by: IncomeHunter

It is a stark reality for many individuals; they take a look at their garage, storage shed or attic and come to the realization that they simply have too much stuff to make any sense of it all. For many, this serves as the ultimate wakeup call for them to start the cleaning process so they can once again regain the valuable space that has been over taken by clutter for way too long. When such a substantial task is required, individuals and businesses alike can no longer rely on the curb-side service they use to rid themselves of the normal trash they accumulate in a week. As a result of this rising need in North America, privately and publicly owned trash companies have arisen across the United States and Canada to appeal to consumers who are increasingly looking for a company that can provide them with large-scale trash removal services. What companies operate in this space, and what opportunities do they provide for investors looking for an investment in the trash removal industry?

The Canadian waste management market was reported to be a $2.9 billion industry in 1998. To further enhance these numbers, it was reported that 69 percent of the revenue was spent on privately owned waste management companies. This was a 7 percent increase from 1996 numbers. Although these figures may not fully depict the waste management market today, with the population of Ontario rising from 10.75 million in 1996, to 12.16 million in 2006, of which 5.4 million lived in the city of Toronto, it is easy to predict where the demand for waste management is heading.

Waste Management Canada is a branch of the U.S. based Waste Management (NYSE:WM), the top provider of waste management services in North America today. The company charges between $340 and $459 for trash storage and disposal, which takes into account one or two metric tons of trash, depending on the size of the dumpster rented. This pricing is largely attributed to the wide service area that Waste Management covers, which reportedly includes nine Canadian provinces and over 4.5 million customers. This vast expansion has played a significant role in its share price experiencing significant volatility in the last two years as it has seen its value rise to nearly reach $40 in April of 2011, but subsequently saw a steep decline to around $28 in August of 2011.

Waste Management reported revenue of $3.46 billion in the second quarter of 2012, a 3.4% increase over revenue of $3.35 reported during the same quarter of 2011. But, Waste Management did see a decline in its net income per diluted share from the second quarter of 2011 to this previous quarter, from $.50 to $.45, respectively. This was primarily due to a $26 million charge for restructuring and $6 million charge for a Teamsters pension plan partial withdrawl.

Casella Waste Management (NASDAQ:CWST) and Republic Services (NYSE:RSG) currently service only U.S.-based customers, despite Toronto's proximity to the upstate New York market. Casella is also dealing with inconsistent earnings reports as it tries to shed the pessimism surrounding its first-quarter 2012 losses that reached nearly $38 million. Meanwhile, Republic has seen consistent positive earnings statements, which in the last quarter reached $387 million. This rise resulted in its share price climbing out of its 52-week low of around $25 in July, to reach nearly $29 per share at the end of August.

As a whole, the province of Ontario accounted for 38.7 percent of Canada's total population in 2009. Junk It, a private trash removal company, is poised to capture part of this heavily populated area. With this significant market share in its backyard, Junk It has strategically narrowed its focus. This will not only give Junk It an increased exposure in a profitable area, but will also keep its overhead expenses low. Beyond its narrowed focus, what makes Junk It unique from its other large-scale competitors is its pricing and wide range of services that go well beyond providing a dumpster and trash hauling services. Junk It offers a wide range of do-it-yourself trash bins, which range in price from $184 to $204, plus a $99 per metric ton of trash removed, but also offers professional services to remove the junk and clean the area for the customer, which range in price from $89 to $489 depending on the amount of trash that needs to be removed. Junk it not only provides less-expensive trash hauling services than its main competitor, Waste Management, but it has also positioned itself to appeal to more businesses and individuals, with its full-service options that may continue to increase in demand if Canada is able to rebound from its poor July job figures.

It may be a safe bet that for a majority of Canadians, who reportedly spend an average of 36.4 hours per week at work, hauling out large amounts of trash is not on their top 10 list of favorite things to do.

Although there have been initiatives put into place in the Toronto area for limiting the amount of waste, it was still anticipated that in 2011, a single landfill that services Toronto would still receive approximately 793,000 tons of garbage for the year. This is but a snapshot of the overall production of garbage and recycling that is produced across the province. Given that the human population will continue to grow, the substantial share of the waste management market that Waste Management Canada and private companies currently serve should be seen by investors as a huge growth catalyst.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.