Houston, Tex.-based environmental waste management services provider Waste Management, Inc. (WM) offers its services to residential, industrial, commercial, and municipal customers across North America. The company has an ISS Governance quality score of 1, which indicates minimal governance risk.
Shares of WM have gained 33.7% over the past year, and 23.3% year-to-date.
WM was listed in Fortune’s annual “World Most Admired Companies” in 2021 for the third year in a row. Furthermore, the company has been ranked #1 in Fortune’s industry category this year, moving up from the #6 position it held last year. This reflects WM’s improving business structure and its strong foothold in the sustainability space. WM was also recognized in the non-profit CDP’s A list in 2020, for the fifth year in a row, owing to its leadership in corporate sustainability and environmental action.
Here’s what we think could shape WM’s performance in the near term:
Acquisition
WM acquired Advanced Disposal in October last year for $4.60 billion. It expects to derive long-term value from the acquisition and its annual cost and capital expenditure synergies to exceed $100 million.
Through this acquisition, WM has gained access to nearly three million additional commercial, residential and industrial customers across 16 states in the eastern regions of the country. The company’s earnings and cash flows are expected to rise significantly owing to acquisition synergies.
Strong Balance Sheet
WM’s trailing-12-month total debt stands at $13.49 billion, representing 181.56% of its total equity. However, the company maintains sufficient cash flows to meet its debt and interest obligations. Its trailing-12-month net operating cash flow and levered free cash flow came in at $3.76 billion and $1.86 billion, respectively. WM’s covered ratio is 6.64, while its debt/free cash flow ratio stands at 6.77.
The company repurchased $1.29 billion of outstanding senior notes through a cash tender offer in May. Furthermore, the company intends to repurchase $1.35 billion of outstanding shares this year. WM aims to hit its 2.5x - 3x targeted leverage ratio this year.
Impressive Growth Estimates
A $4.44 billion consensus revenue estimate for the current quarter (ending September 2021) indicates a 15% improvement year-over-year. WM’s EPS is expected to rise 22.9% from the prior-year quarter to $1.34 in the current quarter.
The Street expects the company’s revenues and EPS to rise 12.8% and 20.6%, respectively, from the same period last year to $17.17 billion and $4.86 in its fiscal year 2021. Furthermore, WM’s revenue is expected to increase 4.8% from its year-ago value to $17.99 billion next year, while EPS is projected to rise 12.1% year-over-year to $5.45 in 2022.
Analysts expect WM’s EPS to rise at a 13% CAGR over the next five years.
POWR Ratings Show Promise
WM has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
WM has a B grade for Stability and Quality. The stock has a relatively low beta of 0.81, which is in sync with its Stability grade. And its higher-than-industry profit margins justify its Quality grade. WM’s trailing-12-month gross profit margin and ROE of 38.94% and 21.96%, respectively, compare with 28.98% and 10.1% industry averages.
Of the 18 stocks in the Waste Disposal industry, WM is ranked #5.
Beyond what we’ve stated above, we have also rated WM for Growth, Value, Momentum, and Sentiment. Get all WM ratings here.
View the top-rated stocks in the Waste Disposal industry here.
Bottom Line
WM’s goal is to reduce its current carbon emissions four times by 2038. Also, it plans to cut GHG fleet emissions by 45% by 2038. The company’s low-carbon products and services currently reduce, offset and avoid emissions three-fold, making it a key player in the environmental services industry. Given rising concerns regarding climate change and sustainability worldwide, as the number of natural catastrophes across North America and Europe increases, WM’s products are expected to be widely demanded. Its revenues and earnings are expected to witness stable growth over the long term. Thus, we think WM is an attractive investment bet now.
WM shares were trading at $145.93 per share on Friday morning, up $0.57 (+0.39%). Year-to-date, WM has gained 24.84%, versus a 16.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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