Which Waste Company Stands to Benefit The Most from Construction Boom?

SEATTLE (Waste Advantage): The market is expecting an increase in house construction and general infrastructure activity. Homebuilder stocks have already priced this in, but which companies stand to benefit in other sectors?

Economic strengthening and tax reform have created a broad increase in American indices. Many industries have seen widespread price appreciation, but homebuilder stocks have seen outsized gains. The price appreciation in homebuilders more than double the growth of the S&P 500.

The optimism extends to general infrastructure, with companies like Caterpillar, Deere, and Hitachi Construction Machinery showing strong price appreciation.

There are many reasons for the broad appreciation in home building stocks. The Globe and Mail wrote on the 30th of November 2017:

"A growing economy, solid job market, low unemployment rate and low mortgage interest rates have helped drive demand for homeownership this year. And a stubbornly thin inventory of homes for sale has kept home prices headed higher. All that has been a boon for homebuilders. Sales of new U.S. homes hit the fastest pace in a decade last month."

The legitimacy of the above hypothesis is unknowable, but the valuation multiples on housing stocks tell a distinct story.

The price-to-sales ratio of homebuilders and industrial machinery has skyrocketed, while profit margins have remained relatively stable (except Caterpillar, whose shareholders benefited from a large profit margin increase, due to operating at 50 bps profit margins previously).

The valuation multiples imply (A) forward sales acceleration and (B) margin expansion. Tax cuts add ~20% to FCF generation and house price increases in good years approximate 5%. With PS ratios increasing 50%, the market is clearly expecting a materially increased demand for housing.

The stock prices of homebuilders partly reflect the forward optimism regarding purchases of new homes, but are there any other ways to benefit from this expected growth?

A safe assumption is that increased homebuilding and infrastructure activity will produce waste. The waste associated with the waste sector is often heavily regulated and requires different handling than common types of solid waste.

There are several verticals in the waste industry that deal with construction waste. The industry term is C&D waste (construction & demolition). C&D waste is a significant part of the aggregate US waste-stream; by some estimates, C&D waste constitutes 30% of US waste.

 Courtesy: https://wasteadvantagemag.com