Overvalued Waste

Anyone cover waste management companies here? I looked at this company (Casella Waste) in 2018 for an PE interview pitch presentation, and believed it was significantly overvalued back then. It had its strengths and all, but it was trading at a significant premium to analogues. For disclaimer, neither then nor I have ever I had any position in this or any waste management company.  

Having integrated operations (collection, transfer, disposal) is really key in this kind of business, and that helps you pass on price increases to customers. I remember benchmarking this company with its peers (Waste Mgmt, Republic, Advanced Disposal, Waste Connections) and had found from 2012 to 2017, its price growth was generally lower than peers, and so were its revenue from its collection, transfer, and landfill operations. I also remember finding the company's acquisition history mediocre at best, given how much capital they had plowed in, and the benefits in return. From 2000 to 2018, Casella has lagged its Municipally Solid Waste peers in margins, growth and total shareholder returns. To add to it, insiders had been sellers of Casella’s stock over the past two years (since 1 st January 2017) selling shares on the open market but buying none, which doesn’t signal confidence in company’s prospects. 

The way the "downside" was protected though that they were virtually at a 100% market share in the north east market, where they could just dominate if need be. Contracts with municipalities tend to be long-term, sticky, and recurring in nature. But that also opened the company to adverse risk if things didn't go out as planned in the northeast markets (I am referring to the Zero Waste policy here). Although CSW had a recycling division, unlike its peers, its revenue growth from Recycling between 2012 and 2017 had been negative, so either it wasn't prioritizing it well or it just didn't really care...

Anyways, I had forgotten about this company until recently, and noticed that it eclipsed all my projections by at least 8 miles. I suppose I suck at modeling. What still shocks me though is that company trades at such a high premium (on EV/EBITDA) relative to the same comps that I looked earlier.  

Since 2018 to 2021, its revenue growth has been higher than its three peers (Waste Mgmt, Waste Connections, Republica) but again it had a lower revenue base to begin with (did $660 MN in revenue in 2019 vs. on average $10BN for its 3 peers), and its EBIT (which is important given that the depreciation associated with the equipment and all MATTERS) has been lower than its three peers consistently. Same can also be said for its EBITDA margins, which have increased though 2.6% over the L3 years relative to (0.1%) for its 3 peers. This could be because its position in the North East market is so entrenched. 

The company trades at ~22.9 EV/LTM EBITDA (though EBIT would be a better metric to look at) compared to ~17x for its 3 peers. Advanced Disposal, which was its 4th comp in the solid waste market that I had analyzed 4 years ago got acquired at a multiple of ~11.5x in Oct 2020. Now I am no expert, and have no idea what is going on, but I do know that the solid waste market is concentrated, and my hunch tells me that for the last many years, the market has been baking in the assumption that this company (Casella Waste) gets taken out at some premium, hence the high valuations, otherwise, none of this makes any sense...Waste Management might not be as sexy as tech here, but folks can enjoy good margins there...one of the problems I feel though, in addition to others, is that there are would be a reasonable number of colorful characters operating in this space (not saying that any of the bigger players are), but it becomes important to due diligence this kind of stuff for liability risks... That's it.