The Cleanaway Waste Management Ltd (ASX: CWY) share price rose 1.33% to $1.90 today, bringing its year-to-date return to just over 14%.
Cleanaway Waste Management is Australia’s leading total waste management services company.
The company has demonstrated consistent and reliable earnings growth in an organically growing sector. Overarching factors such as population growth, population density and consumption will always be organically increasing, which is favourable for Cleanaway services such as waste collection, treatment, processing and recycling.
Across a four-year period between FY15 to FY18, the company had a compound annual growth rate (CAGR) of 6.3% for net revenue, 28.9% for net profit and 23.7% for earnings per share (EPS).
Cleanaway is also expecting further business integration and efficiencies from its recent acquisition of Toxfree Solutions, a previously listed waste service provider. Management has cited that it remains “confident that the target $35 million in synergies will be achieved over the two-year timeframe”.
Is the Cleanaway Waste Management share price a buy?
Cleanaway is by no means a value play as the stock trades at a P/E ratio of roughly 37x FY18 figures.
A note out of Morgans on February 6 revealed that its analysts have lifted their Cleanaway target price by 2.6% to $1.94. While this target price only represents a 3% upside to the current share price, there are plenty of tailwinds that can act in favour of the business.
I believe that Cleanaway does offer investors with defensive exposure. I would even argue that it does more so than classic defensive stocks such as Sydney Airport Holdings Pty Ltd (ASX: SYD).
Cleanaway Waste Management is expected to release its FY19 half-year results on February 14.
The company has not given any specific guidance but is confident that operating segments will report improved earnings in FY19.
The main risk of holding Cleanaway through reporting season is that the company trades on a relatively expensive multiple.
With that being said, I have great confidence that Cleanaway will continue its momentum on the back of a robust waste management sector, acquisition integration and a proven track record of growth.
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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.