Casella Waste Systems: I Am Still Buy Rated As EBITDA Growth Outlook Remains Bright

Core Viewpoint - The company maintains a buy rating for Casella Waste Systems (CWST), anticipating continued EBITDA growth into FY25, driven by pricing momentum, cost savings from M&A integrations, and volume recovery [1][10]. Financial Performance - In 1Q24, CWST reported revenue of $341 million, reflecting approximately 30% growth, aligning with consensus estimates. Organic growth was 3.6%, influenced by a solid waste price increase of 5.5%, although offset by a volume decline of 2.6% [2]. - The gross margin improved to 32.3%, a 90 basis points increase year-over-year, primarily due to pricing growth. The EBITDA margin expanded by 140 basis points to 20.8% [2]. Volume Analysis - The weak volume performance in 1Q24, down 2.8%, was attributed to non-structural factors, including the company's strategy to eliminate low-margin accounts and a temporary decline in Construction and Demolition (C&D) volumes due to competitor landfill issues [3][4]. - Municipal solid waste volumes increased by 1.7%, and commercial collection volumes also saw growth, indicating that the overall volume performance may be better than reported when adjusted for specific factors [4]. Pricing Dynamics - Pricing for CWST remains robust, with solid waste prices tracking slightly above historical trends, although a slight dip may occur in the near term due to high comparison bases from previous quarters [5]. - Historical pricing growth has averaged a 7.5% CAGR from FY16 to FY23, and while short-term pricing may dip, it is expected to revert to historical trends [5]. M&A Integration and Cost Management - CWST's effective M&A integration has contributed positively to EBITDA margin expansion, with management noting a 50 basis points increase in 1Q24 due to synergies from acquisitions [6]. - The company is ahead of its expense reduction goals from a recent acquisition and has invested in autonomous trucks to further reduce costs in the future [6]. Valuation Insights - The valuation model indicates potential upside for CWST, with a target price of $118, representing a 21% upside from the current share price of $97.51 [7][8]. - The EBITDA growth estimates have been upgraded to reflect better-than-expected M&A integration, with expectations of continued strong growth in FY25 [8]. Conclusion - Despite weak headline volume figures, the company maintains a buy rating for CWST, emphasizing strong pricing momentum and effective cost management through M&A integrations as key drivers for sustained EBITDA growth [10][11].