GFL Environmental stock rated Outperform by William Blair on valuation

William Blair raised its rating on GFL Environmental Inc. to an Outperform on Wednesday, noting the stock's current price of around $40 appears undervalued when compared to its peers and considering potential multiple expansion. The firm highlighted the company's consistent upward earnings revisions and its position as a leader in the growth algorithm within the industry.

GFL Environmental has demonstrated solid financials, with a 14.35% year-over-year revenue growth over the past year. However, the stock has experienced a 9.5% decline over the last week. Despite recent challenges, analysts predict the company will achieve profitability this year. GFL's board decided to maintain its public status after rejecting a private equity offer at $52 per share, which would have valued the company around 14 times its 2027 EBITDA.

The firm believes the board should have targeted approximately 15 times 2027 EBITDA or $58 per share. According to their sum-of-the-parts analysis, which includes SECURE and minority investments, GFL's fair value is estimated at $50 in a base case scenario, while the company trades at an EV/EBITDA multiple of 20.39x, with a market capitalization of $18.29 billion.

Beyond just valuation, GFL offers investors organic earnings growth, significant merger and acquisition opportunities, and potential for reduced leverage along with aggressive capital deployment. Analysts estimate the SECURE acquisition accounts for 15% to 20% of the company's adjusted EBITDA going forward. Additionally, there are parties interested in acquiring shares from the company's financial sponsor shareholders, and GFL may facilitate this process.

Recent secondary offerings by private equity owners could put some near-term downward pressure on the stock. In other developments, GFL reported third-quarter results that exceeded expectations, with a 27% year-over-year revenue growth, a record adjusted EBITDA margin of 31.5%, and adjusted free cash flow of CAD 272.5 million. The company has raised its full-year guidance for the third time this year.

However, GFL turned down a $22 billion buyout proposal from private equity firms including Blackstone Inc., KKR & Co. Inc., and Energy Capital Partners LLC, deeming the offer insufficient. This article utilized AI assistance and was reviewed by an editor.