Pat McKeough responds to many personal questions about specific stock market advice and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle. This week, one question from an Inner Circle member concerned a leading Canadian waste company. This firm has made several acquisitions, and Pat takes a detailed look at the company’s strategy and the risks it takes in order to pursue the potential rewards of growth by acquisition. Q: Pat: What is your current recommendation on Progressive Waste Solutions? I would like to know your thoughts on this company and whether or not this stock should be held. A: Progressive Waste Solutions (symbol BIN on Toronto; www.progressivewaste.com) changed its name from IESI-BFC in May 2011. IESI-BFC was called BFI Canada until June 1, 2009, when it merged with its wholly owned subsidiary, IESI-BFC Ltd. In Canada, the company mainly operates as Progressive Waste Solutions, BFI Canada and Waste Services Inc. (WSI). It uses the Progressive Waste Solutions, IESI and WSI banners in the U.S. Progressive is one of North America’s largest solid-waste-management companies. However, it does not manage, collect or dispose of hazardous or liquid waste. Instead, Progressive collects and disposes of waste from over four million commercial, industrial, municipal and residential customers. It gets 58% of its revenue from the U.S. and 42% from Canada. In total, the company operates 117 waste-collection operations, 30 landfills, 63 transfer-collection stations and 48 material-recovery facilities. [ofie_ad]
Poor economy in U.S. northeast forces Progressive to take a writedown of goodwill
In the three months ended September 30, 2012, Progressive’s revenue fell slightly, to $487.2 million from $490.5 million a year earlier. (All figures in U.S. dollars.) Earnings per share were down 3.4%, to $0.28 from $0.29. A decline in recycled commodity prices in the latest quarter cut the company’s earnings per share by $0.07. Progressive holds cash of $15.4 million, or $0.13 a share. Its $1.5-billion long-term debt is a high 63% of its $2.4-billion market cap. It also has $1.1 billion of goodwill and intangible assets, largely because it continues to grow by purchasing other companies. That figure is a high 46% of its market cap. For example, Progressive lost $296.2 million, or $2.48 a share, in the fourth quarter of 2011 after it took a $360.6-million writedown of goodwill. The company wrote down the value of its operations in the U.S. northeast due to heightened competition and the area’s poor economy. Progressive continues to grow by acquisition. In 2011 it bought 13 companies, and in the first three quarters of this year it added 12 more. Earlier this month, it bought Choice Environmental Services for $123.3 million. Choice is a solid-waste-services company based in Fort Lauderdale, Florida. Progressive trades at 22.0 times this year’s forecast earnings per share of $0.96. The shares yield 2.7%. In the Inner Circle Q&A, Pat balances Progressive’s well-established position in the waste industry against the risks of its growth-by-acquisition strategy, increasing competition and the possibility of costly, growing environmental regulation. He concludes with his clear buy-hold-sell advice on the stock. (Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.) COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members When stocks you own have bought other companies, have the acquisitions generally worked out in your favour as an investor? Have any of these acquisitions worked out so badly that you sold the stock? Let us know what you think.
