Analysts reiterate confidence in GFL following short-seller report

A number of analysts have reiterated their confidence in Canda-based GFL Environmental Inc. after the stock lost as much as 10 percent of its value on Aug. 18 following the release of a negative report from an activist short seller.

As reported by the Financial Post, New York-based Spruce Point Capital Management Inc. published a 107-page “strong sell” report earlier this week that questioned GFL’s roll-up business model and highlighted alleged inconsistencies in its accounting. In a statement, GFL said the report contained “numerous inaccuracies and mischaracterizations” and was “without merit.”

At least four analysts from major U.S. and Canadian banks have since reaffirmed their positive outlooks on the waste management company’s prospects.

Goldman Sachs, New York City, analyst Brian Maguire was one such analyst, as he upgraded the stock to a “buy” and raised his 12-month price target on the TSX-listed shares—which closed Aug. 20 at $25.45—to $32.

“We are encouraged by management’s ability to prove out its growth strategy through multiple transformative acquisitions,” Maguire wrote. “As a result, we upgrade shares to buy to reflect GFL’s industry-leading growth trajectory while still trading at a 1.7 times EBITDA multiple discount to solid waste peers.”

According to the Financial Post, Maguire also directly addressed some of the concerns that Spruce Point raised about GFL’s accounting, arguing that variations in the numbers GFL used for capex in its financial statements were normal and reflected differences in when that equipment was put into service and when cash payments for it were made.

National Bank of Canada, Montreal, Canada; Stifel Financial Corp., St. Louis, Missouri; and Jefferies, New York City, also published defenses of GFL, the Financial Post reports.

Jefferies analyst Hamzah Mazari said he viewed the recent weakness in the stock as a buying opportunity. As for Spruce Point’s critiques of GFL’s roll-up business strategy, Mazari said that every publicly traded company in the waste management business operates under this structure.

“The waste sector by nature is a roll up and GFL is as well which does not mean it is going to zero,” Mazari said.