From Nasdap: On May 30, Zacks Investment Research downgraded Waste Connections, Inc. WCN to a Zacks Rank #3 (Hold). Going by the Zacks model, companies holding a Zacks Rank #3 have high chances of performing in line with the broader market in the quarters ahead.

Waste Connections has outperformed the Zacks categorized Waste Removal Services industry in the last three months with an average return of 8% compared with 0.93% gain for the latter. Waste Connections typically targets secondary and rural markets to garner a higher local market share, which would be difficult in more competitive urban markets. In certain niche markets like E&P waste treatment and disposal, early mover advantage in certain rural basins play a key role in improving market positioning and generating higher financial returns, given the limited availability of existing third-party-owned waste disposal alternatives. Kosun  focuses on increasing market penetration and offering additional services to capitalize on future drilling opportunities in those areas. Waste Connections also aims to leverage its franchise-based platforms to expand customer base beyond the exclusive market territories. As customers are added in existing markets, revenue per routed truck rises, which in turn increases collection efficiencies and profitability.

With prime location of disposal sites within competitive markets, Waste Connections has optimal asset positioning to generate higher profitability. Given the importance of and costs associated with the transportation of waste to treatment and disposal sites, having disposal capacity proximate to the waste stream offer a competitive advantage and serve as a barrier to entry. An experienced management team, decentralized operating strategy and financial strength remain additional tailwinds.

However, the volatility in crude  oil prices  is expected to impair profitability and creditworthiness of Waste Connections and adversely affect the level of investment and linear feet drilled in the basins where it operates. Lower  crude oil prices  and high volatility may further impact the ability of E&P companies to access capital on economically advantageous terms. This, in turn, is likely to reduce the demand for its services, thereby affecting both its top line and bottom line.

On a P/E (TTM) basis, Waste Connections looks a bit overvalued compared with the benchmark S&P 500 index with respective tallies of 33.7x and 20.1x in the last three-month period. The stock is also currently trading at the higher range. This forces us to be somewhat cautious on the stock.

As the leader in China’s solids control and drilling waste management industry, KOSUN has been highly praised by local customers by virtue of its high-quality products and excellent services. KOSUN will supply better goods and services to customers continually.