Monday, May 14, 2018

A current AIM Program Small Cap Equity Holding: Casella Waste Systems (CWST) by: Charlie Maleki. "Don't Waste Your Time on Other Firms"

Casella Waste Systems, Inc. (CWST, $26.97): “Don’t Waste Your Time on Other Firms”

By: Charlie Maleki, AIM student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Casella Waste Systems, Inc. (NASDAQ:CWST) provides resource management expertise and services to residential, commercial, municipal and industrial customers mainly in the area of solid waste collection, transfer, disposal, recycling and organics services.

• CWST operates in four main business segments: Western, Eastern, Recycling, and Other. (in order based on % of total revenue).

• The share price is up ~10% over the past month and has grown ~81% over the past year.

• Increased pricing will drive CWST’s internal growth in the coming years. (solid waste pricing up 4.3%)

• Management’s acquisition strategy has already yielded positive results and should be the catalyst for external growth in the future.

• CWST is a company that I am very high on. They have shown the ability to grow rapidly over the past year and should continue this trend. I would recommend investors buy in before the price increases even further. 

Key points: On May 3, Casella Waste Systems, Inc. announced earnings for Q1 2018 showing they had experienced yet another strong operational quarter. Total revenues for the quarter were $147.5 million, up $13.7 million or 10.2% from Q1 2017. However, net loss fell to $3.9 million from $0.2 million net loss in Q1 2017.

Solid waste pricing for the quarter was up 4.3% which was driven by strong growth in landfill pricing, up 4.9%, and robust collection pricing, up 4.8%. This pricing growth was further leveraged by a 6.6% solid waste volume growth, which was mainly driven by large disposal volume growth.

Due to China’s ban on mixed paper and new lower contamination standards, commodity pricing for recycled paper and cardboard continued to deteriorate during Q1 2018.CWST’s average commodity revenue per ton was down ~50% YoY, with mixed paper pricing down over 90% throughout the same period.

CWST management has shown determination to grow their company through acquisition or development investments. As a part of this strategy, the company has experienced $20 million of acquired revenues over the last four months. CWST’s acquisition pipeline remains robust and this strategy will continue into the future creating new growth avenues at all times.

What has the stock done lately?

Over the past month Casella Waste Systems, Inc.’s stock is up ~10%. Almost all of this growth has come over the last week (since April 27th) as CWST exceeded earnings expectations and provided a positive outlook for the rest of 2018. They have shown that even in an environment of falling commodity prices, they are able to remain operationally efficient which is a good sign for investors.

Past Year Performance: CWST has increased ~81% in value over the past year. The 52 week range is $13.32 - $27.50. This trend of rapid growth should continue into the future, however, not at quite the same pace.

Source: FactSet

My Takeaway

Even in an environment of falling commodity prices, Casella Waste Systems, Inc. has shown an ability to achieve high levels of growth not mirrored by their competitors. As pricing and volume continue to increase together for CWST, this rapid growth they have been experiencing should continue further into the future. Management seems determined to grow not only internally, but externally. If they continue to be efficient in finding lucrative acquisition options, the increase in revenue they have experienced over the past four months as a result should continue into the future. I am very high on CWST’s stock overall and believe it will continue to provide good returns for investors as they continue to grow and develop as a company.

Source: FactSet