How To Make Money From Waste

Includes: RSG, SRCL, WCN
by: Fusion Research

The global waste management, recycling, and waste-to-energy market is worth $1 trillion this year and is expected to double by 2020. This growth is fueled by population growth and environmental regulation across the globe. Currently only one-fourth of the 11 billion tons of waste is collected and recycled globally. This has created an increasing need for proper waste disposal, which is driving companies to develop capacity and technology for the disposal and recycling of waste.

Here I have analyzed three waste management companies to investigate what they are doing to capitalize on the improving waste market.

Sailing on the economic prospects

Republic Services (RSG) is developing recycling plants in the Dallas-Fort Worth area and the Loraine County Resource Recovery Complex in Ohio, to increase its revenue from recycling. The development of recycling plants will help it reduce the high cost of landfill disposal and generate revenue from recycled products. The two plants will be able to process 95,000 tons per year of recycled material in addition to the existing capacity of 554,000 tons. These two plants will help expand the company's footprint in newer markets and increase capacity. This increase in volume is expected to increase the recycling segment's revenue from $471.9 million last year to $530.2 million next year.

The recent housing market recovery in the U.S. will help Republic collect and dispose of additional municipal solid waste, or MSW, volume. The U.S. economy expects a demand of 1.2 million to 1.5 million housing units this year, an increase of 12% over last year. According to company sources, increased home construction is expected to drive the volume of waste collection. Republic will benefit from homebuilding activity through its exclusive MSW collection rights in large cities like Las Vegas, Nevada, Anaheim, California, Arlington, Texas, and other major markets. This increase in volume will drive the company's net profit.

Innovative service and cross-selling benefits

Stericycle's (SRCL) new service offering "StrongPak" is in its pilot phase and will cater to retailers, pharmacies, and discount stores. It designed StrongPak to provide hazardous-waste management services like regulatory-compliant packaging, disposal, and reporting of hazardous and non-hazardous waste. Increased regulatory scrutiny and fines for non-compliance by government authorities is driving the demand for this service. In its initial phase before launch, the company has already identified 750,000 retail locations and has signed multiple national accounts to offer the service. The new service provides a solid growth potential; it is the extension of its already existing medical hazardous waste management expertise to the retail market. The revenue expected this year from the "StrongPak" is around $300 million and could add around $1 billion when sales peak.

The company has fantastic growth potential in its sharps management and clinical services in its international segments. The international segment includes U.K., Canada, Japan, etc. Sharps management provides safe disposal of clinical tools while clinical services provide regulatory compliance services. The company has a global customer base of around 55,000, which could potentially use these two services. The international market has 35% small quantity waste generators, or SQ, and 65% of large quantity waste generators, or LQ.

SQ produces less than 1000 kg of hazardous waste per month while LQ produces greater than 1000 kg of hazardous waste per month. The increasing government regulation on the disposal of medical waste will create further demand for these services. As of now, only 33% of SQ and 20% of LQ use one of the services. The growth in the international segment is expected to be in the range of 5%-8% this year. This is expected to boost the company's international business revenue from $542 million last year to $629 million this year and $657 million next year.

The Texas boom beating out forex headwinds

Progressive Waste Solution (BIN) is well positioned to take advantage of shale gas availability in Texas, through its construction waste disposal services. The shale gas availability has spurred construction growth in the region. Approximately 10.5 million square feet of warehouse space is under works as demands from major industries rise. Through the company's large number of centers in this region, it can move the additional rubble generated during the construction of new buildings as well as destruction of old ones. The Texas region generates 15% of Progressive Waste Solution's revenue. The growth in Texas is expected to boost the revenue from the Southern U.S. region from $780 million last year to $868 million this year.

The company will likely face headwinds due to the weakening of the Canadian dollar against the U.S. dollar. The Canadian currency is weakening because of the trade deficit and the weak recovery of Canada's exports. It earns 40% of its revenue and 50% of its operating profits from Canada and reports its financial statements in U.S. dollars. According to the company, a $0.01 strengthening in the U.S. dollar will impact its revenue by $7.6 million and the operating profits by $2.5 million this year. The impact of a one-cent change in the foreign exchange, or forex, rate of the Canadian dollar causes an approximate change of $1 million in Progressive Waste Solution's net income. It is expected that the Canadian dollar will stay devalued slightly through the year, dropping to $0.97 on an average, which has prompted the company to reduce its revenue guidance slightly from around $2.02 billion to around $1.97 billion.


Though Progressive Waste Management is facing headwinds in the forex market, its presence in the Texas market gives a better revenue generation opportunity. The presence in Texas far outweighs the impact of forex.

Republic Services is well positioned to benefit from the growth in the U.S. economy due to the increase in housing and non-residential construction. Stericycle is using its expertise in medical waste management to develop its "StrongPak" services. The company will also receive demand from its sharps management and clinical services from the international markets.

Hence, I recommend a buy on all three stocks.

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.