The Permian Basin is a major hotbed in the U.S. oil and gas industry, cranking out a whopping 5 million barrels of oil daily and 23 billion cubic feet of natural gas (NGX23) per day. Investors are flocking to opportunities in the resource-rich area, particularly after oil major Exxon Mobil (XOM) shelled out $60 billion to expand its Permian footprint via the purchase of Pioneer (PXD).
Plus, interest in energy stocks has been higher than usual lately, with oil futures (CLZ23) revisiting the $90 level late last week against a backdrop of production cuts and simmering geopolitical tensions in the Middle East.
However, not all Permian Basin stocks are created equal. The best investments offer value and growth potential beyond simple exposure to quick pops in the price of commodities.
Take Waste Connections Inc. (WCN), for instance. They're not your typical oil and gas company. Instead, they're in the business of managing solid waste services in the Permian Basin and other spots across the U.S. and Canada. They handle non-hazardous waste collection, disposal, recycling, and even renewable fuel generation for residential, commercial, and industrial customers.
And not only is WCN well-positioned to cash in on growing demand for waste management services in the bustling Permian Basin, but the company also offers noteworthy income potential for investors.
WCN: A Solid Dividend History
Valued at a market cap of $34.91 billion, WCN boasts an enterprise value of $41.81 billion. Their commitment to shareholders is worth noting; the stock offers an annual yield of 0.75%, backed by 12 consecutive years of dividend payments and 5 consecutive years of dividend growth - two streaks that are lengthy enough to comfortably exceed their respective sector medians.
What's more, WCN has a sensible 25.2% dividend payout ratio - a metric that bests both the sector median and the company's own 5-year average. This suggests a relatively high degree of dividend safety.
Shares of Waste Connections haven't exactly outperformed in 2023, but neither has the broader energy sector. WCN is about 2% higher YTD, while the S&P 500 Energy Sector SPDR (XLE) is up 2.9%. Meanwhile, sector heavyweight XOM is roughly flat on the year.
Upside from the Exxon-Pioneer Deal
Following the Exxon-Pioneer merger, which most analysts expect to receive regulatory clearance, the oil major's Permian production is expected to immediately increase to 1.3 million barrels of oil equivalent per day (MOEBD), with further growth to 2 MOEBD projected by 2027.
The creation of a new production giant in the Permian should bode well for WCN. The company owns and operates essential facilities such as landfills, transfer stations, and recycling hubs, all designed to cater to the waste management needs of the E&P industry. As production in the area ramps higher, demand for waste management should rise as well.
With the single-biggest U.S. oil and gas company making a massive investment in the Permian, WCN stands to benefit from increased production volumes in the region.
What Do Analysts Expect From WCN?
The latest earnings release is expected from Waste Connections this Wednesday, Oct. 25, with the consensus calling for EPS of $1.14 - up 3.6% from last year. The company has a history of beating analysts' bottom-line expectations.
Among the 16 analysts tracking WCN, 12 give it a "strong buy" recommendation, 2 have a “moderate buy” recommendation, and 2 say “hold.” Plus, Wall Street's mean price target of 158.19 represents 17.5% potential upside from current levels.
Conclusion
In summary, Waste Connections is a compelling investment in the busy Permian Basin. Its solid financials, consistent dividend, and strategic position in oil and gas waste disposal make it a standout choice in the energy sector, regardless of volatility in energy prices.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
