Waste Management Upped to Neutral - Analyst Blog
19 November 2011 - 4:04AM
Zacks
We have upgraded our recommendation on Waste Management
Inc. (WM) from Underperform to Neutral. The company is the
largest provider of comprehensive waste management services in
North America.
Waste Management recorded a 15% increase in EPS to 63 cents in
the third quarter from 55 cents in the year-ago quarter. Revenues
increased 9% to $3.52 billion. Both results beat Zacks Consensus
Estimates.
Waste Management recently acquired Oakleaf Global Holdings and
its primary operations for $425 million. The combination will
provide North American customers with unprecedented access to waste
and recycling solutions by pairing the largest network of directly
owned hauling, recycling, diversion and disposal assets with the
largest managed third-party network.
The integration is on track. The company expects to generate a
minimum of $80 million in EBITDA on an annualized basis.
2010 marked the seventh consecutive year of an incremental
quarterly dividend. With the current dividend rate of 34 cents per
share, the current dividend yield came in at 4.3%. Backed by its
strong cash flow, Waste Management is expected to announce another
dividend hike this year.
Waste Management’s cost cutting efforts helped to maintain its
profits despite weak volumes. In the recently reported third
quarter, the company witnessed a $28 million benefit from its cost
reduction initiatives. Management stated that it remains focused on
its cost control measures.
On the flipside, Waste Management has incurred huge startup
costs for growth initiatives in the medical waste business and for
its first ever retail product Bagster. These investments have not
as yet generated the expected returns. We believe increasing costs
from growth initiatives would weigh on the company’s margins in the
near term.
Waste Management’s margins were already affected by higher fuel
prices and deterioration in pricing across most business lines,
particularly residential. We expect margin deterioration to
continue due to the impact of the Oakleaf integration and continued
customer churn.
Prices of paper commodities, namely old corrugated containers
and old newsprint, have declined sharply in October, the trend
continuing in November as well. Waste Management may face
significant headwinds if prices continue to drop. According to
management, a $10/ton drop in average price would impact EPS by
about a cent for the full year. Furthermore, the fourth quarter
also faces a headwind from the loss of a large contract in South
Florida.
To sum up, we have upgraded our recommendation, on the stock,
from Underperform to Neutral, with the rewards balancing out the
risks. We intend to hold a more positive stance when Waste
Management’s cost cutting and growth initiatives bear fruit.
Waste Management is the largest provider of comprehensive waste
management services in North America. The company provides
collection, transfer, recycling and resource recovery, as well as
disposal services to nearly 20 million residential, commercial,
industrial and municipal customers. It competes
with Republic Services, Inc. (RSG)
and Casella Waste Systems Inc. (CWST).
Waste Management currently maintains a Zacks #3 Rank (Hold) on its
stock for the short term.
CASELLA WASTE (CWST): Free Stock Analysis Report
REPUBLIC SVCS (RSG): Free Stock Analysis Report
WASTE MGMT-NEW (WM): Free Stock Analysis Report
Zacks Investment Research
Casella Waste Systems (NASDAQ:CWST)
Historical Stock Chart
From Jun 2024 to Jul 2024
Casella Waste Systems (NASDAQ:CWST)
Historical Stock Chart
From Jul 2023 to Jul 2024