Shares of solid waste recycler Waste Connections Inc. (WCN) fell Tuesday morning after the company lowered its third quarter revenue guidance.
The stock dropped about 8%, declining $2.98 to $34.07 per share by 10:50 am Eastern Time. Shares of the Folsom, California-based company slid below their 50-day moving average, a technical trading barrier, and hit their lowest level in two and a half weeks.
After the closing bell on Monday, Waste Connections updated its revenue guidance for the third quarter of 2008 and its intention to issue 10 million shares of its common stock.
The company now estimates revenue in the range of $271 million and $272 million, with pricing growth of approximately 6.0% and a negative volume growth of approximately 2.5%.
Six analysts polled by First Call/Thomson Financial estimate revenue of 272.91 million.
The company views operating income before depreciation and amortization expense in the range of $80 million and $81 million. Depreciation and amortization expenses are anticipated to be approximately 8.9% of revenue while operating income is estimated to be in the range of 20.5% and 20.8% of revenue.
The company also outlined its anticipation on other elements, which shape the profit and loss statements for the third quarter. These include estimated net interest expense of approximately $8.7 million, minority interests and other expense at approximately 1.4% of revenue, effective tax rate at approximately 36% and the fully diluted share count at approximately 68.5 million shares.
The registered offering of Waste Connections also includes a plan to grant the underwriters an option to purchase up to 1.5 million additional shares to cover any over-allotments. A slice of the net proceeds will be used to repay a portion of the outstanding borrowings under senior revolving credit facility and the balance will be allocated for general corporate purposes including acquisitions.
In mid-August, Friedman, Billings, Ramsey downgraded Waste Connections shares to market perform from outperform, while increasing its price target to $40 from $38.
Although analyst Brian Butler said at the time that he believed that Waste Connections remains an excellent long-term investment, at current valuations there is limited upside over the next 12 months.
According to Butler, Waste Connections was well positioned to have a strong fiscal 2009 as its CPI-based pricing catches up on fuel and the impact of its operating improvements becomes visible in its core business. The analyst's new discounted cash flow-derived price target of $40 assumes long-term revenue growth of 7.2% with EBITDA margin of 30.4%.
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