On Monday, GFL Environmental Inc. (NYSE:GFL) shares experienced a notable increase, climbing 10% in the afternoon session, while the S&P 500 Index saw a decline of 0.6%. The uptick in GFL's stock followed reports that the company might be the target of interest from a group of private equity sponsors. Truist Securities maintained a Buy rating on GFL Environmental, with a steady stock price target of $46.00.
The interest from private equity firms is rumored to be in either a partial or full acquisition of GFL's operations, particularly the Environmental Services (ES) segment. Industry precedents, such as the acquisition of Stericycle (NASDAQ:SRCL) at a roughly 15 times 2024 estimated EBITDA multiple, indicate that a sale of GFL's ES division could potentially command a premium over its current trading multiple of 12.7 times based on 2024 estimates.
Truist Securities suggests that divesting the ES business could substantially decrease GFL's leverage, which stood at 4.3 times in the last quarter. This reduction in debt has been highlighted as a key concern for investors and is believed to be a significant factor in the company's current valuation discount compared to its Solid Waste industry peers.
The analyst at Truist Securities believes that the reported interest from private equity in GFL's assets reaffirms the potential for management to explore various strategies to enhance shareholder value and narrow the valuation gap. The firm's outlook on GFL remains positive, with the expectation that the company has several options to increase its worth to shareholders.
InvestingPro Insights
As GFL Environmental Inc. (NYSE:GFL) garners attention with its recent stock surge, insights from InvestingPro provide additional context for investors. The company has been consistently raising its dividend, with a growth of 16.67% in dividends over the last twelve months as of Q1 2024, indicating a commitment to returning value to shareholders. This aligns with the positive outlook from Truist Securities regarding shareholder value enhancement.
Moreover, despite a challenging financial position marked by a significant debt burden and short-term obligations exceeding liquid assets, analysts predict GFL will be profitable this year, with a noted profitability over the last twelve months. This could be a reassuring signal for investors considering the company's potential in the face of acquisition interest.
InvestingPro Tips highlight that GFL is trading at a high EBIT valuation multiple, which could relate to the premium that private equity firms might be willing to pay, as discussed in the article. Additionally, the fact that GFL is trading at a high P/E ratio relative to near-term earnings growth suggests that investors are expecting significant future earnings. For those looking to delve deeper into GFL's financials and future prospects, InvestingPro offers a wealth of additional tips—there are 11 more tips available at https://www.investing.com/pro/GFL. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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