Waste Connections, Inc. (WCN): Breakout in Niche Waste Management Player Could Lead to 13% Gains by Year-End

Over much of May and June, the stock struggled to break $41. This level now represents a small shelf of resistance.

However, during the July 1 trading week, shares bullishly moved above $41 resistance and are now trading at an all-time high. With no overhead resistance in sight, the stock could potentially soar.

The bullish technical outlook is supported by strong fundamentals.

For the upcoming second quarter, scheduled to be reported at the market’s close on July 23, analysts project revenue will increase 17.3% to $481.9 million from $410.7 million in the year-ago quarter.

Due to heightened demand for cleaning services in suburban and rural areas, analysts project full-year 2013 revenue will climb 17% to $1.9 billion from $1.7 billion in 2012.

The earnings outlook is equally strong.

For the upcoming second quarter, analysts expect increased demand for non-hazardous oilfield waste treatment and disposal services will result in a 22% increase with earnings reaching $0.44 per share from $0.36 in the comparable year-earlier period.

Due to expansion of its increased non-hazardous waste treatment services, analysts expect full-year 2013 earnings will rise 15.6% to $1.78 per share from $1.54 last year.

In addition to a solid technical and fundamental outlook, the shares offers a forward annual dividend yield of about 1%. Management has increased the dividend every year since it was started in 2010 and will likely continue to do so — especially if the company becomes an MLP.

Risks to consider: Waste Connections has made its mark in the competitive waste management industry by focusing on suburban and rural rather than metropolitan areas. However, this industry does not have large barriers to entry. Increased competition in this niche area could reduce Waste Connections, Inc. (NYSE:WCN)’ future revenues and profits.

Recommended Trade Setup:

— Buy WCN at the market open
— Set stop-loss at $38.12, just below a current shelf of support
— Set initial price target at $46.95 for a potential 12.8% gain in 5-6 months

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