January 26, 2021
Michael E. Hoffman joined Stifel in 2014 and is a Managing Director and Group Head of Diversified Industrials Research, covering Environmental Services and Pest Control. He is based out of the Stifel Baltimore office.
His past awards include ranking #2 in pollution control from Institutional Investor, Greenwich Associates, and Reuters and top ranked with Starmine for Commercial Business Services estimates and stock picking. Mr. Hoffman has been an analyst for more than 32 years, having also been an analyst with Wunderlich Securities, Friedman Billings Ramsey, Credit Suisse, Robertson Stevens, and Salomon Brothers.
He was director of research at Wunderlich, president, chief operating officer, and director of research with Caris, deputy director of research, head of fixed income research and group head of diversified industrial research with FBR, and head of global value research at Credit Suisse.
Mr. Hoffman earned a B.S.E. from Widener University and an MBA from the Johnson School at Cornell University. He is the 2001 owner/rider winner of the Maryland Hunt Cup, an errant golfer and avid fly fisherman.
He is a member of the National Waste and Recycling Association Hall of Fame Class of 2020.
In this 2,255 word interview, exclusively in the Wall Street Transcript, Stifel analyst Mr. Hoffman offers some recommendations for ESG portfolios looking to add waste management securities.
“I’ve been a sell-side analyst for 33 years. Within that timeframe, I’ve always covered environmental services, which at one time was called pollution control.
Through time, I’ve covered staffing companies and multinational, multi-industrial conglomerates and defense. I’ve always had, at the root of my coverage, the environmental services space. I’m also the group head of the industrials coverage at Stifel…
In the solid waste, if there’s a major difference on a global basis, it’s the European countries, predominantly more so than anywhere else in the world, that have walked away from landfill as the primary form of disposal, which from our perspective, had more to do with land space than viewing landfill as bad for the environment.
All of Europe fits inside the upper-eastern quarter of the United States, and they have more people than the U.S. With one quarter of the landmass, why would Europe use good land for disposing of your waste on a long-term basis if there are alternatives? And that is why Europe embraced waste energy which is referred to as energy-from-waste (EfW).
In Europe, waste-to-energy is the primary form of disposal, and then recycling with some volume that has to go into landfill.
In North America, our primary source of disposal is landfill, partly because we have an abundance of land and partly because it’s the lowest-cost option.
It’s also an extraordinarily highly engineered solution too, which is often lost in the conversation. Since 1994 with the final rulemaking of the Subtitle D, which governs the design, operation and lifecycle costs and financial obligations of operating municipal solid waste landfills — this is one of the most highly sophisticated civil engineering source solutions to waste management.
And it’s one of the most reliable, consistent and lowest-cost bioreactors available for converting organics and capturing the energy value of organics in a waste stream.”
According to the Stifel star analyst the solution in North America is engineering intensive:
“…Landfills generate methane, which is a greenhouse gas. What is usually lost is how effective the design is in capturing that methane and then converting it into energy.
It is an effective, reliable way to do it and much more cost effective than, say, the only other method that can be done at scale, which is anaerobic digestion. They’re extraordinarily expensive.
They require power prices in the $60, $70 a megawatt, where spot energy prices today are $25 a megawatt. And it’s not without its own air pollution-related issues. So a modern landfill is a very effective solution and it works for us here in North America because we do have an abundance of land.
Today, solid waste is using a piece of land that doesn’t have risk associated with it, like ground water or surface water access that are too close to the site.
These landfills are a highly engineered, fully lined, multiple-layered system that capture the liquids generated in a landfill called leachate.
The landfill is lined with a 12-millimeter high-density polyethylene liner, which a vacuum can be drawn on the seals. There’s a 30-year obligation to monitor the site once it’s closed to assure that there’s no risk to human health and the environment.
Once capped, a vacuum can be drawn on the landfill in order to pull the gases off. Modern Subtitle D landfills are extraordinary civil engineering projects in how to manage a landfill lifecycle, economically and environmentally, and so a safe way to manage waste.”
Stifel analyst Michael Hoffman explores several companies providing this service:
“There are five recommended publicly traded solid waste equities. By size: Waste Management (NYSE:WM), Republic (NYSE:RSG), Waste Connections (NYSE:WCN), GFL Environmental (TSE:GFL) and Casella Waste (NASDAQ:CWST) — largest to the smallest.
All of them operate landfills. All of them have landfill gas operations, with about 1 million tons of waste under the cap to support LFG generation…
We just published our 2021 outlook and one of our top picks for 2021 is GFL Environmental; it’s the most attractive relative value within the group.
We have a “buy” on all of our solid waste; there is a stock for virtually any type of investment style. GFL, on a relative value basis, compared to the peer group, based on enterprise value or free cash flow yield, is the most attractive entry point.
The other way the market tends to look at this is sustainable sales, profit and free cash flow growth rates. Waste Connections is a compelling stock year in and year out, because it tends to be a high-single-, low-double-digit free cash flow growth compounder year in and year out.
We think Republic is deemed as extraordinarily reliable, repeatable equity, and with solely U.S.-based revenues.
Waste Connections, Waste Management and GFL all have both U.S. and Canadian, which introduces currency translation. Sometimes its currency is favorable and sometimes it is not; however, it is all translational, not transactional, so really should not matter.
Casella is deemed a very attractive small-cap play the market has rallied around over the last year and a half. There have been a lot of non-traditional small-cap money looking for high-quality recurring revenue stories with good underlying organic growth characteristics, a good free cash growth compounder, and Casella fits that bill.”
Get the complete detail on these and other compelling Stifel recommendations from the Hall of Fame analyst Michael Hoffman in his complete 2,255 word interview, exclusively in the Wall Street Transcript.