The Permian Basin stands as a thriving hub in the U.S. oil and gas sector, churning out an impressive 5 million barrels of oil daily and a staggering 23 billion cubic feet of natural gas per day. With this wealth of resources, investors are increasingly drawn to opportunities in this region, particularly following Exxon Mobil’s (NYSE:XOM) substantial $60 billion investment in expanding its Permian presence through the acquisition of Pioneer.
Furthermore, interest in energy stocks has spiked recently, with oil futures approaching the $90 mark, underpinned by production cutbacks and simmering geopolitical tensions in the Middle East.
Nonetheless, it’s crucial to recognize that not all Permian Basin stocks are created equal. The most promising investments extend beyond mere exposure to volatile commodity price fluctuations; they offer a combination of value and growth potential.
Consider Waste Connections Inc. (NYSE:WCN), for example. Unlike typical oil and gas companies, they specialize in managing solid waste services not only in the Permian Basin but also in various locations across the United States and Canada. Their services encompass non-hazardous waste collection, disposal, recycling, and renewable fuel generation for residential, commercial, and industrial clients.
What sets Waste Connections apart is not only its strategic position to capitalize on the growing demand for waste management services in the bustling Permian Basin but also its enticing income potential for investors.
WCN: A History of Dependable Dividends
With a market capitalization of $34.91 billion and an enterprise value of $41.81 billion, Waste Connections places a strong emphasis on its commitment to shareholders. The stock currently offers an annual yield of 0.75%, supported by a remarkable track record of 12 consecutive years of dividend payments and 5 consecutive years of dividend growth. These streaks comfortably surpass the sector medians and underline the company’s dedication to rewarding investors.
Furthermore, Waste Connections maintains a sensible 25.2% dividend payout ratio, surpassing both the sector median and the company’s own five-year average. This ratio suggests a relatively high degree of dividend safety.
In terms of performance, while shares of Waste Connections have not exhibited remarkable growth in 2023, they have still outperformed the broader energy sector. Waste Connections has experienced a modest 2% gain year-to-date, while the S&P 500 Energy Sector SPDR (XLE) has seen a 2.9% increase. Meanwhile, industry-heavyweight Exxon Mobil (NYSE:XOM) has remained relatively flat throughout the year.
Potential Upside from the Exxon-Pioneer Deal
In the wake of the merger between Exxon and Pioneer, expected to secure regulatory approval, Exxon’s Permian production is projected to immediately escalate to 1.3 million barrels of oil equivalent per day, with further growth to 2 million barrels of oil equivalent per day forecasted by 2027.
This development presents a favorable outlook for Waste Connections. The company owns and operates essential facilities, including landfills, transfer stations, and recycling hubs, all designed to cater to the waste management needs of the exploration and production (E&P) industry. As production in the region surges, the demand for waste management services is also poised to rise.
With the largest U.S. oil and gas company making a substantial investment in the Permian Basin, Waste Connections is well-positioned to benefit from the expected surge in production volumes within the region.
Analyst Expectations for WCN
Waste Connections is set to release its latest earnings on Wednesday, October 25, with a consensus projection of earnings per share (EPS) of $1.14, reflecting a 3.6% increase from the previous year. It’s worth noting that the company has a history of surpassing analysts’ bottom-line expectations.
Among the 16 analysts tracking Waste Connections, 12 have designated it as a “strong buy,” 2 as a “moderate buy,” and 2 as a “hold.” Additionally, Wall Street’s average price target of $158.19 implies a potential upside of 17.5% from its current levels.
Conclusion
In conclusion, Waste Connections presents an appealing investment opportunity in the bustling Permian Basin. Its robust financial performance, consistent dividend track record, and strategic role in oil and gas waste management make it a standout choice in the energy sector, even amidst fluctuations in energy prices.
Featured Image: Freepik @ bugphai
Author Faith Yakubu 
