On Thursday, UBS adjusted its stance on Waste Connections Inc . (NYSE:WCN), downgrading the stock from Buy to Neutral, despite increasing the price target to $181 from the previous $170. The revision comes after the stock experienced more than a 28% increase in its share price over the past three months.
Waste Connections is currently trading at a multiple of 17.2 times its estimated 2024 enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA), and it has a free cash flow (FCF) yield estimate of 2.9% for 2024, figures that are nearing five-year highs.
UBS acknowledges the strength of Waste Connections' business model but anticipates headwinds due to declining inflation, which could dampen core pricing growth in the years 2024-2025. The new price target suggests a potential upside of approximately 7% from the current share price but does not meet UBS's criteria for a Buy rating.
The firm's analysis points to the broader Municipal Solid Waste (MSW) sector, where lower inflation is expected to lead to slower pricing growth in 2024. This sector-wide trend reflects the challenges that Waste Connections may face in the near future.
The downgrade by UBS comes as a notable shift in their outlook for Waste Connections, as the company's stock valuation approaches peak levels not seen in half a decade. The modest potential upside captured by the new price target indicates a more conservative expectation for the stock's performance moving forward.
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