Intrinsic value of Waste Connections - WCN

Previous Close

$69.51

  Intrinsic Value

$316.79

stock screener

  Rating & Target

str. buy

+356%

  Value-price divergence*

+4151%

Previous close

$69.51

 
Intrinsic value

$316.79

 
Up/down potential

+356%

 
Rating

str. buy

 
Value-price divergence*

+4151%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of WCN stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 18.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  75.29
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  3,376
  5,402
  8,345
  12,481
  18,109
  25,549
  35,124
  47,146
  61,906
  79,658
  100,615
  124,941
  152,752
  184,118
  219,064
  257,580
  299,628
  345,146
  394,062
  446,295
  501,769
  560,409
  622,155
  686,960
  754,795
  825,648
  899,531
  976,473
  1,056,527
  1,139,764
  1,226,279
Variable operating expenses, $m
 
  4,274
  6,364
  9,300
  13,296
  18,578
  25,376
  33,911
  44,390
  56,994
  71,872
  88,704
  108,449
  130,717
  155,528
  182,873
  212,725
  245,041
  279,770
  316,854
  356,238
  397,870
  441,708
  487,717
  535,877
  586,181
  638,635
  693,261
  750,097
  809,192
  870,615
Fixed operating expenses, $m
 
  92
  95
  97
  99
  102
  104
  107
  110
  112
  115
  118
  121
  124
  127
  130
  134
  137
  140
  144
  147
  151
  155
  159
  163
  167
  171
  175
  180
  184
  189
Total operating expenses, $m
  2,924
  4,366
  6,459
  9,397
  13,395
  18,680
  25,480
  34,018
  44,500
  57,106
  71,987
  88,822
  108,570
  130,841
  155,655
  183,003
  212,859
  245,178
  279,910
  316,998
  356,385
  398,021
  441,863
  487,876
  536,040
  586,348
  638,806
  693,436
  750,277
  809,376
  870,804
Operating income, $m
  452
  1,035
  1,887
  3,084
  4,714
  6,869
  9,644
  13,128
  17,406
  22,552
  28,628
  36,119
  44,183
  53,277
  63,409
  74,577
  86,769
  99,968
  114,152
  129,298
  145,383
  162,387
  180,292
  199,084
  218,755
  239,301
  260,725
  283,037
  306,251
  330,388
  355,476
EBITDA, $m
  916
  1,619
  2,549
  3,857
  5,638
  7,992
  11,023
  14,830
  19,503
  25,125
  31,761
  39,465
  48,273
  58,207
  69,276
  81,475
  94,793
  109,211
  124,704
  141,249
  158,820
  177,395
  196,953
  217,481
  238,968
  261,411
  284,814
  309,186
  334,544
  360,911
  388,315
Interest expense (income), $m
  88
  127
  241
  407
  641
  959
  1,379
  1,920
  2,599
  3,432
  4,435
  5,619
  6,992
  8,563
  10,335
  12,308
  14,483
  16,858
  19,429
  22,192
  25,142
  28,275
  31,586
  35,074
  38,734
  42,565
  46,566
  50,739
  55,085
  59,606
  64,307
Earnings before tax, $m
  361
  909
  1,646
  2,677
  4,073
  5,910
  8,265
  11,208
  14,808
  19,120
  24,193
  30,501
  37,190
  44,714
  53,075
  62,269
  72,286
  83,109
  94,723
  107,106
  120,242
  134,113
  148,706
  164,010
  180,021
  196,736
  214,159
  232,298
  251,166
  270,782
  291,169
Tax expense, $m
  114
  245
  444
  723
  1,100
  1,596
  2,231
  3,026
  3,998
  5,162
  6,532
  8,235
  10,041
  12,073
  14,330
  16,813
  19,517
  22,440
  25,575
  28,919
  32,465
  36,210
  40,151
  44,283
  48,606
  53,119
  57,823
  62,720
  67,815
  73,111
  78,616
Net income, $m
  247
  663
  1,201
  1,954
  2,973
  4,315
  6,033
  8,182
  10,810
  13,958
  17,661
  22,266
  27,149
  32,641
  38,744
  45,456
  52,768
  60,670
  69,147
  78,187
  87,776
  97,902
  108,555
  119,728
  131,415
  143,617
  156,336
  169,577
  183,351
  197,671
  212,553

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  154
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  11,104
  17,538
  27,096
  40,522
  58,795
  82,951
  114,038
  153,073
  200,994
  258,631
  326,672
  405,653
  495,949
  597,785
  711,247
  836,300
  972,818
  1,120,604
  1,279,421
  1,449,011
  1,629,119
  1,819,509
  2,019,983
  2,230,390
  2,450,632
  2,680,677
  2,920,556
  3,170,368
  3,430,282
  3,700,534
  3,981,426
Adjusted assets (=assets-cash), $m
  10,950
  17,538
  27,096
  40,522
  58,795
  82,951
  114,038
  153,073
  200,994
  258,631
  326,672
  405,653
  495,949
  597,785
  711,247
  836,300
  972,818
  1,120,604
  1,279,421
  1,449,011
  1,629,119
  1,819,509
  2,019,983
  2,230,390
  2,450,632
  2,680,677
  2,920,556
  3,170,368
  3,430,282
  3,700,534
  3,981,426
Revenue / Adjusted assets
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
Average production assets, $m
  534
  853
  1,319
  1,972
  2,861
  4,037
  5,550
  7,449
  9,781
  12,586
  15,897
  19,741
  24,135
  29,091
  34,612
  40,698
  47,341
  54,533
  62,262
  70,515
  79,279
  88,545
  98,300
  108,540
  119,258
  130,452
  142,126
  154,283
  166,931
  180,083
  193,752
Working capital, $m
  51
  -146
  -225
  -337
  -489
  -690
  -948
  -1,273
  -1,671
  -2,151
  -2,717
  -3,373
  -4,124
  -4,971
  -5,915
  -6,955
  -8,090
  -9,319
  -10,640
  -12,050
  -13,548
  -15,131
  -16,798
  -18,548
  -20,379
  -22,293
  -24,287
  -26,365
  -28,526
  -30,774
  -33,110
Total debt, $m
  3,629
  6,889
  11,640
  18,312
  27,394
  39,400
  54,850
  74,250
  98,067
  126,713
  160,529
  199,782
  244,660
  295,272
  351,663
  413,814
  481,663
  555,113
  634,045
  718,332
  807,845
  902,469
  1,002,105
  1,106,677
  1,216,137
  1,330,469
  1,449,689
  1,573,846
  1,703,023
  1,837,338
  1,976,942
Total liabilities, $m
  5,456
  8,716
  13,467
  20,139
  29,221
  41,227
  56,677
  76,077
  99,894
  128,540
  162,356
  201,609
  246,487
  297,099
  353,490
  415,641
  483,490
  556,940
  635,872
  720,159
  809,672
  904,296
  1,003,932
  1,108,504
  1,217,964
  1,332,296
  1,451,516
  1,575,673
  1,704,850
  1,839,165
  1,978,769
Total equity, $m
  5,648
  8,821
  13,629
  20,382
  29,574
  41,724
  57,361
  76,996
  101,100
  130,091
  164,316
  204,043
  249,462
  300,686
  357,757
  420,659
  489,327
  563,664
  643,549
  728,853
  819,447
  915,213
  1,016,052
  1,121,886
  1,232,668
  1,348,380
  1,469,039
  1,594,695
  1,725,432
  1,861,369
  2,002,657
Total liabilities and equity, $m
  11,104
  17,537
  27,096
  40,521
  58,795
  82,951
  114,038
  153,073
  200,994
  258,631
  326,672
  405,652
  495,949
  597,785
  711,247
  836,300
  972,817
  1,120,604
  1,279,421
  1,449,012
  1,629,119
  1,819,509
  2,019,984
  2,230,390
  2,450,632
  2,680,676
  2,920,555
  3,170,368
  3,430,282
  3,700,534
  3,981,426
Debt-to-equity ratio
  0.643
  0.780
  0.850
  0.900
  0.930
  0.940
  0.960
  0.960
  0.970
  0.970
  0.980
  0.980
  0.980
  0.980
  0.980
  0.980
  0.980
  0.980
  0.990
  0.990
  0.990
  0.990
  0.990
  0.990
  0.990
  0.990
  0.990
  0.990
  0.990
  0.990
  0.990
Adjusted equity ratio
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  247
  663
  1,201
  1,954
  2,973
  4,315
  6,033
  8,182
  10,810
  13,958
  17,661
  22,266
  27,149
  32,641
  38,744
  45,456
  52,768
  60,670
  69,147
  78,187
  87,776
  97,902
  108,555
  119,728
  131,415
  143,617
  156,336
  169,577
  183,351
  197,671
  212,553
Depreciation, amort., depletion, $m
  464
  584
  662
  773
  924
  1,123
  1,380
  1,702
  2,097
  2,572
  3,133
  3,346
  4,091
  4,931
  5,866
  6,898
  8,024
  9,243
  10,553
  11,952
  13,437
  15,008
  16,661
  18,397
  20,213
  22,111
  24,089
  26,150
  28,293
  30,523
  32,839
Funds from operations, $m
  760
  1,247
  1,864
  2,727
  3,897
  5,438
  7,413
  9,884
  12,906
  16,530
  20,794
  25,611
  31,239
  37,572
  44,611
  52,354
  60,792
  69,913
  79,700
  90,139
  101,214
  112,910
  125,216
  138,124
  151,628
  165,728
  180,425
  195,727
  211,645
  228,194
  245,393
Change in working capital, $m
  -35
  -55
  -79
  -112
  -152
  -201
  -259
  -325
  -399
  -479
  -566
  -657
  -751
  -847
  -944
  -1,040
  -1,135
  -1,229
  -1,321
  -1,410
  -1,498
  -1,583
  -1,667
  -1,750
  -1,832
  -1,913
  -1,995
  -2,077
  -2,161
  -2,247
  -2,336
Cash from operations, $m
  795
  1,302
  1,943
  2,839
  4,049
  5,639
  7,671
  10,208
  13,305
  17,009
  21,360
  26,268
  31,990
  38,418
  45,554
  53,394
  61,928
  71,142
  81,021
  91,549
  102,711
  114,493
  126,883
  139,874
  153,460
  167,641
  182,420
  197,804
  213,806
  230,441
  247,729
Maintenance CAPEX, $m
  0
  -90
  -145
  -223
  -334
  -485
  -684
  -941
  -1,263
  -1,658
  -2,133
  -2,694
  -3,346
  -4,091
  -4,931
  -5,866
  -6,898
  -8,024
  -9,243
  -10,553
  -11,952
  -13,437
  -15,008
  -16,661
  -18,397
  -20,213
  -22,111
  -24,089
  -26,150
  -28,293
  -30,523
New CAPEX, $m
  -345
  -320
  -465
  -653
  -889
  -1,176
  -1,513
  -1,900
  -2,332
  -2,805
  -3,311
  -3,844
  -4,394
  -4,956
  -5,521
  -6,086
  -6,643
  -7,192
  -7,729
  -8,253
  -8,765
  -9,265
  -9,756
  -10,239
  -10,718
  -11,195
  -11,673
  -12,157
  -12,648
  -13,152
  -13,669
Cash from investing activities, $m
  -296
  -410
  -610
  -876
  -1,223
  -1,661
  -2,197
  -2,841
  -3,595
  -4,463
  -5,444
  -6,538
  -7,740
  -9,047
  -10,452
  -11,952
  -13,541
  -15,216
  -16,972
  -18,806
  -20,717
  -22,702
  -24,764
  -26,900
  -29,115
  -31,408
  -33,784
  -36,246
  -38,798
  -41,445
  -44,192
Free cash flow, $m
  499
  891
  1,334
  1,962
  2,826
  3,978
  5,474
  7,368
  9,710
  12,546
  15,916
  19,730
  24,250
  29,372
  35,102
  41,442
  48,386
  55,926
  64,049
  72,744
  81,995
  91,791
  102,120
  112,974
  124,345
  136,233
  148,636
  161,558
  175,008
  188,996
  203,537
Issuance/(repayment) of debt, $m
  -246
  3,273
  4,750
  6,673
  9,082
  12,006
  15,450
  19,400
  23,817
  28,645
  33,816
  39,253
  44,877
  50,613
  56,390
  62,151
  67,849
  73,450
  78,932
  84,286
  89,513
  94,624
  99,636
  104,572
  109,460
  114,332
  119,220
  124,157
  129,177
  134,315
  139,603
Issuance/(repurchase) of shares, $m
  20
  2,651
  3,606
  4,799
  6,218
  7,836
  9,604
  11,452
  13,295
  15,034
  16,564
  17,462
  18,270
  18,583
  18,327
  17,445
  15,900
  13,667
  10,738
  7,116
  2,818
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -262
  5,924
  8,356
  11,472
  15,300
  19,842
  25,054
  30,852
  37,112
  43,679
  50,380
  56,715
  63,147
  69,196
  74,717
  79,596
  83,749
  87,117
  89,670
  91,402
  92,331
  94,624
  99,636
  104,572
  109,460
  114,332
  119,220
  124,157
  129,177
  134,315
  139,603
Total cash flow (excl. dividends), $m
  236
  6,816
  9,690
  13,434
  18,126
  23,820
  30,529
  38,221
  46,822
  56,225
  66,296
  76,445
  87,398
  98,567
  109,819
  121,039
  132,135
  143,043
  153,719
  164,146
  174,326
  186,415
  201,756
  217,545
  233,806
  250,565
  267,855
  285,715
  304,185
  323,311
  343,140
Retained Cash Flow (-), $m
  -5,648
  -3,314
  -4,808
  -6,753
  -9,191
  -12,151
  -15,637
  -19,634
  -24,105
  -28,991
  -34,225
  -39,727
  -45,419
  -51,224
  -57,071
  -62,902
  -68,668
  -74,337
  -79,885
  -85,304
  -90,594
  -95,766
  -100,839
  -105,834
  -110,782
  -115,712
  -120,659
  -125,656
  -130,737
  -135,937
  -141,289
Prev. year cash balance distribution, $m
 
  141
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  3,642
  4,883
  6,681
  8,934
  11,669
  14,892
  18,586
  22,718
  27,234
  32,071
  36,718
  41,979
  47,344
  52,748
  58,137
  63,467
  68,706
  73,834
  78,842
  83,732
  90,648
  100,917
  111,711
  123,024
  134,852
  147,196
  160,059
  173,449
  187,374
  201,851
Discount rate, %
 
  6.70
  7.04
  7.39
  7.76
  8.14
  8.55
  8.98
  9.43
  9.90
  10.39
  10.91
  11.46
  12.03
  12.63
  13.27
  13.93
  14.63
  15.36
  16.12
  16.93
  17.78
  18.67
  19.60
  20.58
  21.61
  22.69
  23.82
  25.01
  26.26
  27.58
PV of cash for distribution, $m
 
  3,413
  4,262
  5,395
  6,627
  7,889
  9,102
  10,181
  11,050
  11,646
  11,931
  11,750
  11,419
  10,809
  9,973
  8,974
  7,878
  6,749
  5,643
  4,605
  3,667
  2,918
  2,338
  1,821
  1,379
  1,013
  723
  500
  334
  217
  135
Current shareholders' claim on cash, %
  100
  87.1
  77.4
  69.8
  63.8
  59.0
  55.1
  51.9
  49.3
  47.1
  45.4
  43.9
  42.8
  41.8
  41.0
  40.4
  40.0
  39.6
  39.4
  39.3
  39.2
  39.2
  39.2
  39.2
  39.2
  39.2
  39.2
  39.2
  39.2
  39.2
  39.2

Waste Connections, Inc. is a solid waste services company in North America. The Company provides waste collection, transfer, disposal and recycling services in markets in the United States and Canada. The Company operates through six segments: Southern segment, Western segment, Eastern segment, Canada segment, Central segment and E&P segment. Through its R360 Environmental Solutions subsidiary, it also provides non-hazardous exploration and production, or E&P, waste treatment, recovery and disposal services in various natural resource producing areas in the United States. It also provides intermodal services for the rail haul movement of cargo and solid waste containers in the Pacific Northwest through a network of intermodal facilities. As of December 31, 2016, it served residential, commercial, industrial and exploration and production (E&P) customers in 40 states and the District of Columbia in the United States and five provinces in Canada.

FINANCIAL RATIOS  of  Waste Connections (WCN)

Valuation Ratios
P/E Ratio 74
Price to Sales 5.4
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 23
Price to Free Cash Flow 40.6
Growth Rates
Sales Growth Rate 75.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 33.7%
Cap. Spend. - 3 Yr. Gr. Rate 4.5%
Financial Strength
Quick Ratio 12
Current Ratio 0
LT Debt to Equity 64%
Total Debt to Equity 64.3%
Interest Coverage 5
Management Effectiveness
Return On Assets 5.5%
Ret/ On Assets - 3 Yr. Avg. 6.9%
Return On Total Capital 4.3%
Ret/ On T. Cap. - 3 Yr. Avg. 4.6%
Return On Equity 8.7%
Return On Equity - 3 Yr. Avg. 13%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 42.1%
Gross Margin - 3 Yr. Avg. 38.7%
EBITDA Margin 27%
EBITDA Margin - 3 Yr. Avg. 25.6%
Operating Margin 13.4%
Oper. Margin - 3 Yr. Avg. 12.3%
Pre-Tax Margin 10.7%
Pre-Tax Margin - 3 Yr. Avg. 8.9%
Net Profit Margin 7.3%
Net Profit Margin - 3 Yr. Avg. 6.7%
Effective Tax Rate 31.6%
Eff/ Tax Rate - 3 Yr. Avg. 24.4%
Payout Ratio 37.7%

WCN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WCN stock intrinsic value calculation we used $3376 million for the last fiscal year's total revenue generated by Waste Connections. The default revenue input number comes from 2016 income statement of Waste Connections. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our WCN stock valuation model: a) initial revenue growth rate of 60% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 6.7%, whose default value for WCN is calculated based on our internal credit rating of Waste Connections, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Waste Connections.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of WCN stock the variable cost ratio is equal to 84%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $90 million in the base year in the intrinsic value calculation for WCN stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Waste Connections.

Corporate tax rate of 27% is the nominal tax rate for Waste Connections. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the WCN stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for WCN are equal to 15.8%.

Life of production assets of 5.9 years is the average useful life of capital assets used in Waste Connections operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for WCN is equal to -2.7%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $5648 million for Waste Connections - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 264.139 million for Waste Connections is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Waste Connections at the current share price and the inputted number of shares is $18.4 billion.

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COMPANY NEWS

▶ Waste Connections tops Street 2Q forecasts   [Jul-25-17 10:28PM  Associated Press]
▶ Which Companies Are Now Outperforming 95% Of All Stocks?   [Jun-17-17 06:28PM  Investor's Business Daily]
▶ This Breakout Stock Shows One Man's Garbage Is Another Man's Gain   [Jun-13-17 11:20AM  Investor's Business Daily]
▶ Waste Connections Announces Election Of Directors   [May-23-17 04:10PM  PR Newswire]
▶ Top Ranked Growth Stocks to Buy for May 11th   [May-11-17 09:28AM  Zacks]
▶ The MVP of Garbage   [01:02PM  GuruFocus.com]
▶ Top Ranked Growth Stocks to Buy for May 5th   [May-05-17 10:29AM  Zacks]
▶ The Garbage Deal That Was Anything But   [Apr-28-17 02:35PM  Bloomberg]
▶ Waste Connections beats Street 1Q forecasts   [Apr-26-17 06:29PM  Associated Press]
▶ Waste Management Stocks Have Investors Cleaning Up   [Feb-22-17 06:25PM  GuruFocus.com]
Financial statements of WCN
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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