Description

At 71x and 60x 2022 and 2023 EPS, ~19x management’s 2022 EBITDA outlook and less than a 3% FCF yield, I am recommending a short of Casella Waste (“CWST” or the “Company”).  In addition to being “priced for perfection,” I frame below some specific reasons why I think CWST’s stock could reset to a lower price.  Assuming CWST were to trade 20% lower, its FCF yield (which I consider over-stated by management’s generous adjustments to FCF) would be at ~35% premium to the peer group, its 2023E P/E would be at ~85% premium and its EBITDA multiple would be at a 15% premium.  

Based in Vermont, the Company provides integrated solid waste, recycling and resource services through its 49 collection operations, 25 recycling facilities, 63 transfer stations, and 9 disposal facilities (i.e., “landfills”). Casella’s services are provided in Vermont, New Hampshire, New York, Massachusetts, Connecticut, Maine and Pennsylvania.  Approximately 73% of the Company’s revenue is generated from solid waste and 27% from resource solutions (i.e., recycling).  CWST’s disposal business (i.e., landfills) is a core component of the Company’s strategy; it is included in the solid waste segment and represented ~22% of total Company revenue during LTM.  Approximately one-third of the tons that get dumped into CWST’s landfills come from its own waste collection, another one-third from long-term (3-5 year) municipal contracts, and one-third from commercial contracts.  

Before I address the reasons why I recommend CWST as a short, I will agree with what I perceive as the general consensus view that the waste industry is relatively attractive.  I have been long numerous waste companies in the past including Casella Waste starting in 2012.  However, when I was long CWST, at less than 7.5x EBITDA, it traded at ~25% discount relative to its peer group.  

CWST’s EBITDA multiple has more than doubled and is now at a ~40% premium to the peer group.  The Company’s current premium, on 2022E EPS, is ~125%, on 2023E EPS, is ~135%, and on a FCF basis is ~70%.  The well-documented “best-of-breed” industry player is Waste Connections (“WCN”) and CWST now trades at a premium to WCN on each valuation metric.  When I was long CWST, it traded at more than a 40% discount to WCN’s EBITDA multiple.  There have been numerous improvements at CWST that caused the stock to re-rate but I think the market is now ascribing too much of a premium to the Company relative to some risks that should cause the valuation multiple to compress.  

Among the reasons to be short Casella Waste are the following:  

Casella Waste stock is priced for perfection

Having already described some of the valuation components, I won’t repeat them here but I think CWST is “priced for perfection.”  Casella does not pay a dividend; GFL is the only solid waste peer that also does not pay a dividend versus the 35% average payout ratio across RSG, WCN, and WM.  I do not think CWST should trade at a premium multiple and the magnitude of such does not seem rational.  That being said, at a 25% premium to the peer group FCF multiple, CWST would trade at ~$52.  At a 20% premium to the peer group 2023 P/E, CWST would trade at ~$38.    At a 20% premium to the peer group EBITDA multiple, CWST would trade at ~$62.

There was tremendous opportunity to be long CWST below $10 (and below $5!) when I was invested while the market failed to discount the prospects for improving margin, FCF conversion, and a better balance sheet.  My core long thesis back then was ascribed to the Company’s attractive landfill capacity when disposal capacity was declining in the Northeast which I envisioned would play to Casella’s advantage over time.  That has proven to be the case although I think this is now more than discounted by the current price.  The disparity of operating metrics to its peers over ten years ago screamed for better management and the Company effectively responded in making the necessary improvements.  As with most “value” opportunities, it took time for the market to embrace those improvements and begin to discount them accordingly but the magnitude for incremental improvements is no longer a similar opportunity while the market has become overly enamored to ascribe CWST with a premium multiple to each of its peers and an earnings multiple that is more than 3x the S&P. 

Well-documented landfill scarcity value confronting some increasing challenges relative to high expectations

It can take a decade to acquire the necessary permits for a new landfill, and another 2-5 years to build it.  The bullish landfill thesis ascribed to CWST is well-documented and I believe is more than discounted by the current stock price.  Since the landfill opportunity was a key component of my original bullish thesis ten years ago, I very much understand that CWST might continue to capitalize upon tightening disposal capacity across the Northeast in the near-term.  The Company generated increasing landfill price growth from 2016, at 2.1%, through 2020, at 7%.  However, that pace of growth moderated in 2021 at 3.9%.  Other than 2020, at 3.9M tons, annual landfill volumes have ranged from 4.0-4.6M for the period 2016-2021.  Given disposal site closures, Casella’s landfill capacity has greatly benefitted from a supply/demand imbalance.  Landfill tipping fees in the Northeast, averaging nearly $70 per ton, are the highest in the country.   Management estimates that a shortfall already occurred in Massachusetts in 2018. 

My primary research with numerous waste industry experts suggests that disposal tonnage demand in the Northeast is likely to moderate and therefore the magnitude of the supply/demand imbalance will moderate as well.  An executive from Waste Connections told me that landfill capacity will continue to shrink in New England but the 2M tons of waste shipped from Massachusetts to New Hampshire, Maine, New York, Ohio, Virginia, and Alabama is likely to confront increasing challenges from advocacy movements across different states to resist accepting waste disposal from out-of-state.  Nevertheless, the same executive also thinks that disposal tonnage demand growth will likely moderate as well.  

At Casella, some moderation of disposal demand was recently demonstrated as overall landfill volumes were down by over 300,000 tons.  The lower volume was communicated as being primarily from less disposal tonnage from the NYC area.  However, primary research suggests that other reasons will lead to less disposal demand (“relative to expectations”) and this will be ascribed to slower population growth, slower household formation, and slower business formation in the Northeast as well as to the increasing objectives, mandates, and sensitivities towards recycling.  In regards to the weakness in New York, during the Q3 earnings call in October of 2021, CWST’s COO noted “that you also have to recognize that a lot of restaurants are gone, a lot of that good portion of the activity, that is not going to come back or it will come back over a longer, much longer period of time.”    

According to executives at Republic Services, volume growth is 90% correlated (on a one year lagged basis) to housing starts growth and 75% correlated to GDP growth.  The Census Bureau reported that housing starts slid 14% to an annual rate of 1.55M units in May, marking the slowest pace since April 2021.  The rising rate environment will likely have an ongoing adverse impact to housing and will lead to a slowing of housing starts.  While total construction starts in the Northeast improved 20%, ahead of the national start growth, in 2021, a decline of greater magnitude relative to the national level is anticipated in 2022.  Moreover, the state GDP growth in each market where CWST operates is expected to moderate from 2021.  Dodge Data & Analytics projects GDP growth that is 25-60% lower in 2022 across MA, ME, NH, NY, and VT.

At the end of April, during the Q1 earnings call, management reiterated its expectation to meet or exceed tonnage plans for this year.  I describe potential headwinds but I am not asserting that Casella misses their tonnage volume in the very near-term although I do anticipate that disposal volume growth (excluding acquisitions) relative to expectations is likely too high starting in 2023.

Community aversion to landfills

Among the reasons Casella’s disposal capacity became more valuable is because of the landfill closures across its footprint.  One can clearly argue that community aversion to landfills (i.e., “NIMBY”) has enhanced the scarcity value of Casella’s landfill capacity.  However, there is also increased resistance across communities where Casella operates that challenges the potential growth of the Company’s capacity growth coupled with challenges pertaining to the pace of utilization as heightened visibility regarding the source of disposal volumes being dumped into a community’s landfill rises.  For the past several years, every New England state, other than New Hampshire, has enacted some legislation and/or instituted new rules that have made it harder for landfill developers to build new landfills and harder to import trash from other states.  

In Maine, at the Company’s Juniper Ridge landfill which represents 13% of the Company’s total capacity and is one of only two of CWST’s landfill sites without an annual cap, the state’s Governor recently signed a bill into law that stops the Juniper Ridge landfill from taking out-of-state waste.  The law is a victory for the campaign spearheaded by environmental groups across Maine.  The bill was sponsored by Senator Anne Carney who argued that 90% of the waste sent to the Lewiston processing facility on its way to Juniper Ridge is coming from out of state, mostly from Massachusetts.  Given the disposal capacity shortfall in Massachusetts, it is not surprising that waste from MA has been trucked to ME and dumped at Juniper Ridge and consequently benefitting Casella.  The benefit to CWST is not only the disposal volumes from which CWST generates tipping fees but also how more third-party volumes enhances the Company’s pricing power.  Landfill operations have high fixed operating costs with little flex capability and are financially very volume-sensitive.

Increasing concerns regarding landfill pollution (e.g., PFAS) drove environmental advocates in Maine and this movement is not an exception.  Waste tonnage is highly-correlated to population and Maine’s population ranks 43rd at just 1.36M, or about 80% less than the population of Massachusetts.  Over 200,000 tons of out-of-state waste has been disposed at Juniper Ridge annually.  The loss of this tonnage, which amounts to ~5% of the Company’s annual landfill volume, could cost CWST ~$16M of high margin tipping fees per annum.  One industry expert suggested that in some cases these incremental tipping fees can be evaluated as being 80% margin.  For illustrative purposes, assuming 60% margin and a 30% tax, that would serve as a 10% headwind to 2023E EPS for an equity “priced for perfection.”  

During 2013, Casella announced that the Department of Environmental Protection in Massachusetts had increased the annual permit limit at the Company’s Southbridge landfill by 35% from 300,000 tons to 405,000 tons per year.  Casella had operated the landfill since 2003.  CWST’s CEO spoke frequently about the Southbridge landfill as a key component to the Company’s long-term strategy and communicated that the 105,000 additional tons would increase annual EBITDA by over $4M.  During 2017, a lawsuit was filed alleging the Southbridge landfill had been releasing toxic pollutants to the groundwater in Southbridge, Charlton and Sturbridge for years.  In July of 2017, the Company adopted a plan to close the landfill due to the lack of local community support, insurmountable political and regulatory hurdles, and the extremely high cost to develop airspace at the site.  At the end of 2018, Casella announced a settlement pertaining to the Southbridge litigation that included CWST’s obligation to provide free waste collection and disposal services to the town of Southbridge through March 2024 and other remaining cash payment obligations that would continue through mid-2027.  This premature closure generated significant costs coupled with the pull-forward of future liabilities.  If you are interested to learn more about the Southbridge landfill from a negative biased landfill documentary, I have attached the following link:

(https://www.youtube.com/watch?v=kEoGHAXx5Ng&t=256s).  

During the past three calendar years, the Company added back over $30.5M of cash outflows associated with the Southbridge landfill closure as well as Potsdam environmental remediation to frame “Adjusted FCF.”  Given ongoing resistance towards landfills and specifically the numerous violations cited against Casella, there remains substantial risk that Casella might confront additional environmental remediation requirements in the future that would become more of a recurring expense and cash outflow than something to favorably adjust as “non-recurring.” 

Casella’s smallest landfill capacity, at 0.9M, is in Bethlehem, New Hampshire (called North Country by CWST).  The Company has sought to build a new landfill near there, in Dalton, but confronted much resistance from both the community and environmentalists-at-large that the landfill would harm the environment.  Casella’s own studies showed that groundwater flows through the site at 6,000 feet per year and the landfill would be only 2,800 feet from Forest Lake so any contamination would reach that lake quickly.  Casella acknowledged that half of the trash to be dumped in Dalton would come from out-of-state sources.  In spite of the controversy, at the end of this past March, Casella asserted its intent to open the Dalton landfill with a lawsuit if necessary.  However, during June, the Company withdrew its permit applications although management claims it will re-submit a proposal at a later date.  

In regards to the potential expansion of the Bethlehem landfill, the Waste Management Council in New Hampshire recently agreed with the Conservation Law Foundation that the landfill does not provide a substantial public benefit because there is no need for most of the disposal capacity it provides. Approximately half of the waste disposed of in NH landfills comes from out of state.  The attorney at the Law Foundation said, “It’s an important decision not only to get the state off its current landfill-expansion treadmill but also to prevent the continued influx of out-of-state waste.”  The Conservation group also appealed the Department of Environmental Services’ permit decision authorizing the landfill to operate for six years, despite the Department acknowledging that there is no need for the landfill for five of those years, until 2026.  Although a small settlement of just was $50,000 incurred by CWST recently, the agreement was struck to settle a 2018 lawsuit that Casella’s North Country landfill had discharged pollutants into the nearby Ammonoosuc River. Casella also came under scrutiny last year at the North Country Bethlehem landfill for a leachate spill that regulators characterized as something that could have been the largest spill ever in the state.  The North Country Bethelem site’s landfill life is the Company’s only site below five years of life.  The next shortest landfill life is CWST’s Ontario site in NY at 5-7years.  During 2020, more than 1,000 residents participated in a class action lawsuit against Casella pursuant to several years of Ontario County residents submitting complaints.  Given the combination of legal actions, public pressure and state enforcement, the Company finally responded to suppress the “rotten-egg stench” emanating from their Ontario landfill site. 

There might indeed be a landfill capacity crisis in the future that policy-makers will need to explore and consider how to balance waste disposal needs with the environmental challenges that often come with landfills but Casella’s intent to expand its capacity while accelerating its utilization is likely to confront increasing near-term challenges.  There are some analysts that cover CWST pushing for higher landfill pricing growth to exploit its “scarcity value” but I think management is being prudent to avoid calling too much attention to its landfills with anything that might be deemed questionable pricing leading to even more excessive profitability that many deem at the expense of the environment.  Although I suspect that the Company might have more pricing power across some of its landfill footprint (not Juniper Ridge anymore with restrictions to take out-of-state waste) than the ~4% reported last year and for LTM through Q1, my sources suggest that the Company might remain prudent to temper the magnitude of its landfill pricing to avoid calling too much attention to it in an effort to manage against the escalation of negative PR given the recent negative attention being directed at some of its landfills.  

Inflationary and regulatory pressures could challenge expectations of margin growth

As described in the Company’s risk factors, “Inflationary increases in costs, including, but not limited to, current inflationary pressures associated with fuel, labor and certain capital items, as our business is capital intensive, can have a material adverse effect on our business and operating results.”  Although most of Casella’s contracts do provide a pass-through of selected costs including fuel costs in some cases through an energy and environmental fee program, the price of fuel has caused some margin deterioration.  Labor wage pressures coupled with the well-documented challenges to both attract and retain labor is an ongoing headwind.  The Company currently has over 250 employment listings amounting to almost 10% of its workforce.  Casella is offering a $5,000 hiring bonus for numerous diesel technicians and CDL drivers.  Compared to the peer group, CWST has twice the percentage of job listings versus its current workforce.  On the positive spectrum, one might argue there’s more growth potential at CWST if there is a higher employee growth factor.  That is a plausible argument although not evidenced by the similar top-line consensus growth estimates.  My hypothesis is that employee growth is of course a key ingredient to enable the top-line growth that is envisioned but I also believe that Casella’s labor growth comes with more difficult labor pressures than its peer group because of the smaller markets in which CWST operates and therefore the Company is competing with a smaller labor pool in a tight labor market.  More specifically, Casella is the only waste company that called out FedEx and UPS in its risk factors pertaining to competitive labor.

Another inflationary-driven pressure will likely develop across capital spending although this might not become visible until 2023.  The need to replace/upgrade a company’s waste collection fleet is an industry challenge with a lead-time of fifteen months being the norm.  Most deliveries in 2022 have been based on 2020 pricing.  An industry expert said, “Those prices have surged.  Steel prices have more than doubled.  It’s difficult to secure after-market parts so maintenance is longer than historically and the supply chain challenges plus inflation could make the same vehicle in 2023-2024 cost 30-50% more as a capital expense.”  Similar issues apply towards the cost for landfill expansion, remediation, and post-closure obligations. 

There could also be more regulatory-driven expenses than the market is discounting.  As noted by CWST’s CEO, “we have a tremendous burden from a regulatory standpoint; the regulatory burdens are getting more and more difficult, particularly around disposal capacity…we’re now being asked to solve for PFAS and leachate…all of the regulatory aspects of our business are getting more and more difficult and higher—and resulting in higher and higher costs.”  

Overstatement of FCF generation

I am not opposed to making an adjustment to FCF for what can be evaluated as non-recurring.  I won’t address the $30.5M of landfill closure and environmental remediation that I already described as being added back.  For the sake of the overall environment, I hope that those settled violations remain the exception and not the norm.  However, I do think management is extremely aggressive to favorably adjust how it frames FCF by adding back expenditures associated with acquisitions.  By its own admission, management has communicated that an acquisition strategy is core to its overall objectives for “allocating capital to return driven growth.”  Since 2018, management has executed 45 acquisitions, almost ten each year from 2018-2021, plus six YTD so it is highly-questionable for the analyst community to accept adding back “cash outlays from acquisition activities” and “post-acquisition and development project capital expenditures.”  During the past three years, those adjustments totaled over $53M.  On a reported basis, during the past three years in aggregate, CWST generated only $106M (which is coincidentally the mid-point of management’s 2022E FCF outlook).  On an adjusted basis, and of course embraced for regurgitation by the sell-side, CWST generated over twice that amount, at $220M.  I think the recurring business FCF might reside somewhere in between but I don’t think any attempt at spurious accuracy is necessary at the current valuation that is “priced for perfection” even when one accepts the questionable adjustments.

I will also note that CWST has benefitted from NOLs that probably will run out in three years.  During 2021, cash taxes were $1.5M and will likely amount to $4M in 2022.  Management estimates $10M of cash taxes is likely by 2024.

There is also an accounting-driven consideration regarding CWST’s depreciation policies since the Company’s estimated useful life across all its assets other than furniture and fixtures is generally at a longer useful life.  Although a difficult comparison over any one year, it’s worth noting that CWST’s capital spending, at ~14% of revenue, is ~200-300bps more than its peer group during the past three years.

Potential for increased regulatory scrutiny that could marginalize growth prospects

Regulatory scrutiny in the solid waste industry is high because of the environmental issues but the majority of challenges are at a local level.  The waste industry does garner some regulatory scrutiny at the EPA but it is not regulated like an electric utility with regards to pricing.  Casella has primarily confronted issues recently at the community level near its landfill operations but the Company has also confronted legal issues in the past for some questionable business practices.  For example, the Company included language in thousands of contracts requiring customers to notify them of competitors’ offers while also giving CWST at least four months of notice before ending a contract.  These issues surfaced several times during the past two decades and were settled accordingly but the repeated abuse caused some to recognize the Company’s “dominance” and “predatory behavior.”  There are some policy-makers who are increasingly concerned about Casella’s “monopoly status” in Vermont.  Those state leaders would like to regulate Casella’s pricing.  Although this is not likely a near-term catalyst, I share the following comment as some evidence of a potential challenge to Casella in the future.  “There is probably no single area of monopoly having been enabled by the government that is more harmful and less logical than in the garbage industry in this state.  It is government protectionism at its worst, inevitably resulting in much higher prices and lower quality service.”

Insiders have sold over $120M of stock in past four years, even at levels below $28

Insiders own 5% of the stock but almost all of such ownership is by John and Doug Casella, the Company’s co-founders.  Insider alignment across other insiders is quite low at just 0.4%.  During the past four years, over 2.4M of shares were sold by insiders at ~$50.  It’s interesting to note that this level was below the $56 price at which CWST sold ~2.5M shares a couple of years ago when $150M was raised in a stock offering of newly-issued shares.  Since 2019, the Company has issued almost 7M shares in aggregate, at $56 during October 2020 and at $29.50 during January 2019.  No insider has purchased stock since 2015 when CWST traded at $6.  The Casella brothers, who control CWST through a dual-class voting structure, have sold ~$58M of stock during the past four years.  The third largest seller has been COO/President Edwin Johnson who sold $29.5M of his stock at an average price of $53.  Johnson announced his retirement recently and I would very much doubt that he will be an ongoing owner of the 103,000 shares he still owned during April.  

The CFO, who recently also assumed the role of President, was a smart buyer of CWST stock in 2013 and 2014 when it traded at $4 but has been a seller every year since 2016 at $12-$84.  His largest percentage sale of stock relative to what he owned at that specific time occurred during 2018 when he trimmed 22% of his stock at ~$24 and during March 2020 when he trimmed 22% of his stock at ~$52.  I understand the rationale to diversify but I look at the insider selling at Casella as a bunch of insiders who have been prudent for having sold the stock at lower levels because they also find the current price hard to rationalize.  I have not spoken to management recently but I am sure they communicate with the enthusiasm one hears on their earnings call (as they are of course biased to do) when having small investor meetings.  Having spoken to Ned numerous times 8-10 years ago, I am not surprised that he was a willing seller of the majority of the over 410,000 shares he has sold at ~$23-37 during 2018 and 2019.  As to when this gravy train ends for CWST’s stock remains to be seen but the insiders seem to have been reluctant to believe it would escalate so quickly to the current level.

Related party matters 

Since this is disclosed and I have no angle to prove anything with regards to these related-party matters being questionable, I share the following simply as a matter of fact although the presence of related-party issues of this magnitude might be a “red flag” for some further digging.  CWST engages Casella Construction, a company owned by the Casella brothers and their respective sons, to provide construction and related services to Casella Waste including construction, closure and capping activities at CWST’s landfills.  This amounted to $15.2M during 2021.  This is triple the average amount from fiscal years 2011-2013.  The Company also leases two facilities from the Casella brothers.  Those payments are just $346,524 annually and have not increased much from ~$300,000 in 2013.    

Among the risk considerations for being short Casella Waste are the following:

Inflated valuation multiple enhances the potential value-creation from the Company’s acquisition strategy

In my opinion, this is the biggest risk consideration if the public market continues to ascribe an extraordinary lofty valuation multiple to CWST relative to the private market multiple that management is able to execute its tuck-in strategy. The fact is that tuck-ins that improve market share at a local level while improving route densities coupled with greater internalization (i.e., controlling the waste from pick-up to landfill) improve a waste provider’s margin.  Management envisions $30M of incremental revenue per year coming from acquisitions or development.  Management recently highlighted its overall acquisition pipeline at over $500M and noted that there are more sellers because of the challenges pertaining to inflation, especially labor and equipment.  Since 2018, CWST has added $270M of annualized revenue from its acquisition strategy.  Although a CCC+ credit in 2013, the Company’s balance sheet is now levered at ~2.5x so there is capacity (within management’s target to maintain leverage below 3.25x) to continue to execute its acquisition strategy. Roughly 70% of CWST’s debt is fixed-rate.

Relatively resilient business model in an economic downturn

The waste industry is relatively resilient compared to most industries.  Like death and taxes, waste is inevitable even if we dispose of less of it over time.  The industry structure and relative stability becomes a “place to hide” for some fund managers during periods of economic softness.  Moreover, in spite of the numerous environmental violations across different industry participants, the industry has effectively attracted passive ESG flows.  The fact that the waste industry might benefit from a flow-of-funds and do so indiscriminately such that all industry participants benefit regardless of valuation/operational metrics is a risk consideration.  

Pricing programs could effectively address inflationary pressures in the near-term

Management calculated its recent internal rate of inflation as 4.3%, excluding fuel, with an expectation to outpace inflation with pricing programs to improve margin by 20-25 basis points.  Through May, the Bureau of Labor Statistics trash and garbage was up 5.4%.  Through January, the BLS figure was up 4%.  I described some of the inflationary dynamics but in the near-term, based on management’s commentary pertaining to solid waste pricing recently being up over 6%, issues pertaining to inflation might not be a near-term catalyst.  As part of its initial outlook for 2022, management noted an expectation for 4.5-5% solid waste pricing.  Casella’s business mix is only 10% municipal which provides for more pricing flexibility and the Company has less competition in numerous markets having less population density.  Management characterizes 70% of its collection mix being derived from “secondary markets.”  In areas where multiple waste collection alternatives exist, primary research demonstrates that pricing power definitely does not exist.  For example, the city of Saratoga Springs recently terminated its contract with Casella for a price that was ~9% better relative to CWST’s bid.  Four different waste collection companies bid for the 850 tons of Saratoga’s waste business.

Recycling gaining momentum and some waste companies earn more profit on recycled materials

There is an increasing focus by both federal and state policy-makers to drive recycling with some looking to shift the cost of recycling to the producer.  Some industry research assumes 50-100% more EBITDA for a ton of trash from recycled materials versus trash that goes into a landfill.  While recycling is a lower margin profile than landfills, recycling per ton revenue is higher than landfill tip fees (although CWST’s Northeast landfill footprint benefits from a location-driven premium versus the overall industry), thereby driving a higher profit per ton.  However, this risk to the short is mitigated by CWST’s management having implemented a risk management strategy (“SRA fee structure”) that protects Casella on the downside when pricing for recycled materials is below a threshold but also caps the Company’s upside if recycled materials were to benefit from inflation.  As described previously, I believe that the momentum towards recycling could act as a headwind to CWST’s landfill profitability growth as disposal volume growth moderates because of recycling gaining momentum.  I think management’s strategy to manage its downside risk to the historical deflationary challenges across recycled materials is prudent to a large extent.  Although CWST does benefit some from higher prices for recycled materials if that were to be sustained, this is not as significant a risk consideration as the loss of disposal volumes to the Company’s landfill since CWST garners more benefit from its 4M annual disposal volume versus the 1.5M tons of recyclables.    

Casella could be an acquisition target

This is a risk of a majority of shorts and especially so in an industry like waste that has evolved through much consolidation.  However, I do not ascribe much probability to this risk consideration during the current Biden administration.  Furthermore, this risk is very much mitigated by Casella’s premium valuation relative to the peer group and to every historical private market transaction in the waste industry.

Catalyst

Catalysts

·      Lower landfill utilization coupled with lower pricing versus high expectations

·      Regulatory challenges against CWST landfills escalate which leads to loss of landfill capacity and pull-forward of post-closure/remediation liabilities

·      Reduce/Recycle/Reuse movement moderates disposal volume growth

·      Margin growth expectations fail to materialize as pricing measures are not adequate to compensate for inflationary pressures

·      Premium valuation compresses