Sector Watch: Waste management companies

One man’s trash can be another man’s treasure — especially during recessionary periods. To unearth profits in the unlikeliest of places, waste management companies are generally considered defensive investments since they provide essential services and have long-term contracts. Not bad, especially when you’re Waste Services Inc. (Nasdaq:WSII) and American Ecology Corp. (Nasdaq:ECOL), two fast-growing waste management companies.

Demand for hazardous waste cleanup grew rapidly during the 1970s and 1980s as a result of new environmental laws and actions by federal and state agencies to clean up contaminated sites under the federal Superfund law. Hazardous waste cleanup is a $2 billion North American market today, not including the much larger industrial maintenance market. Barriers to entry are huge because of the arduous federal, state, provincial and local permitting processes. No new competitors have entered North America in the past decade and as a result, established players such as American Ecology and Waste Services are benefiting from more stable pricing and new regulatory requirements that increase in-house disposal costs and encourage outsourcing.

Waste Services provides collection, transfer, disposal and recycling services for commercial, industrial and residential customers in the United States and Canada. The company collects trash for approximately 84,000 commercial and industrial customers and 8.4 million residential homes. The terms of its contracts are typically one to five years for commercial customers and three to 10 years for residential services under contracts with municipalities.

The company operates in the Ontario market where it holds the No. 1 or No. 2 market share in the areas it serves, and in Western Canada, where it has leading market shares in Alberta and British Columbia. Waste Services also operates in Florida, where it ranks No. 3 in market share and No. 2 in disposal capacity. The company . . .

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