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Why Shares of Casella Waste Systems Popped 16% in November

By Scott Levine – Dec 7, 2017 at 4:49PM

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The company continues to prove that it can turn trash from customers into treasure for shareholders.

What happened

Extending the 49% climb they experienced through the first 10 months of the year, shares of Casella Waste Systems (CWST -0.30%) rose 16% in November, according to S&P Global Market Intelligence. Unlike competitors such as Waste Management that have large geographic footprints, Casella Waste Systems is a regional operator, providing its services throughout the northeastern U.S. Besides the announcement of the company's third-quarter earnings, management's guidance revision for the remainder of fiscal 2017 pleased investors and sent the stock soaring.

So what

Investors celebrated Casella's growth on both the top and bottom lines. According to the company's press release, "robust collection, disposal and recycling commodity pricing; higher volumes; and the roll-over impact from acquisitions" drove a 6% year-over-year increase in revenue. The sales growth, and the company executing a plan to reduce operational expenses, contributed to increased profitability. Besides a 5.2% year-over-year increase in operating income, Casella reported year-over-year increases of 6.5% in adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) and 60% in net income.

Arrows rise on a digital financial chart superimposed on a world map

Image source: Getty Images.

Further delighting investors, management reported success in strengthening Casella's financial position; the company ended the third quarter with a consolidated net leverage ratio of 3.71. Having achieved its goal of reducing this ratio below 3.75, management reported that its term loan B interest rate will drop by 25 basis points, saving the company approximately $900,000 per year in interest payments.

Management expects the trends which drove the company's strong performance in the third quarter -- higher-than-projected pricing and operating performance -- to extend into the fourth quarter. Consequently, management upwardly revised its guidance for fiscal 2017 revenue, adjusted EBITDA, and free cash flow. Whereas management had originally guided for fiscal 2017 revenue between $577 million and $587 million, it is now expected to come in between $585 million and $595 million. Similarly, the adjusted EBITDA projection was raised from between $124 million and $128 million to between $126 million and $129 million; free cash flow, originally estimated to be between $32 million and $36 million, is now forecast to fall between $34 million and $37 million.

Now what

In light of the year-over-year increases in revenue, operating income, adjusted EBITDA, and net income reported in the third quarter, it's understandable why Casella investors celebrated in November. But the company's impressive financial performance transcends year-over-year comparisons. On the conference call, management noted that as of the end of the third quarter, Casella had "now achieved all of the financial targets that [it] established back in 2015, roughly one year ahead of plan."

Investors can monitor the company's progress in executing its new plan to grow shareholder value -- a plan which includes, among other things, growing annual free cash flow to $50 million by 2021, and annual organic revenue growth of 3% to 4% over the next three years.

Scott Levine has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Casella Waste Systems, Inc. Stock Quote
Casella Waste Systems, Inc.
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