Waste Management: Is It a Good Use of Your Time?

Image of waste in front of a barn

Key points

  • Waste Management had a solid quarter and led the market higher, lifting its shares 5%, and more gains are on the way.
  • Capital returns include dividends, distribution increases and share repurchases, which reduced the number of shares in 2023.
  • Analysts support this market, which is undervalued compared to competitors.
  • 5 stocks we prefer to Waste Management

Waste Management Inc. NYSE:WM it’s not a high-growth stock, a breakthrough technology, or a robust dividend, but it has many qualities that income investors can appreciate.

Waste Management is a recession-proof essential service with a solid organic growth trajectory, robust cash flow and return on capital. It pays out a reliable, growing distribution by buying back shares, investing in growth and sustainability, and maintaining a strong balance sheet, which you can see in the share price.

Waste Management’s stock price has been trending steadily upward over the past decade and recently emerged from significant consolidation. You can see the consolidation on the monthly price action chart, which reveals an incredibly healthy market with the potential to rise another 20% to $210 in 2024/2025.

Analyst sentiment is in line with this objective. MarketBeat.com tracks 14 analysts with current ratings on the stock; have issued sufficient price target updates and revisions over the past 12 months to raise the rating to “moderate buy” from “hold” and the price target by 10%.

The consensus is in line with pre-release market action, suggesting the stock is fairly valued at current levels, but the trend is up and recent revisions are above consensus. The highest target is the most recently set, released in January ahead of the fourth quarter release, and puts the market at $215. Upward revisions are expected to continue now that 2024 results and guidance are available.

Waste Management manages another solid quarter

Waste Management reported another solid quarter with revenue growth and accelerated profit growth. The company posted net sales of $5.22 billion, with earnings of 5.7% beating consensus by a slim margin of 40 basis points. The strength was due to a 7.3% increase in base prices, combined with a 1.9% increase in adjusted disposal volume.

The company expanded its operating margin by an adjusted 240 basis points to reach a record 29.9%. Selling, general and administrative expenses were also controlled and contributed to a 34% increase in adjusted earnings. The $1.74 is also 21 cents or 1,370 basis points above consensus, with strength present in the guidance.

The company expects to sustain revenue and margin expansion in 2024. Revenue is expected to grow 6% to 7%, compounding earnings with another 30 basis points of margin expansion. Adjusted EBITDA is expected to grow 8%, which the company says is enough to support capital allocation plans. These include investments in sustainability and modernization, dividends, share buybacks and strategic acquisitions.

Waste management creates shareholder value with capital returns

Waste Management is creating shareholder value with dividends, distribution growth and share repurchases. The dividend is worth about 1.5% with shares near $197 and represents about 40% of earnings.

The buybacks shaved 1.95% off the share count in 2023, and both are expected to accelerate in 2024. The board of directors announced plans to increase the dividend by 20 cents, or 7%, and to buy back $1 billion in shares, or about 1.3% of market capitalization. .

Waste Management shares rose 5% following the release and guidance, setting a new all-time high. The move confirms the trend and indicates further upside this year. However, some resistance at the new highs suggests that profit taking is in play. In this scenario, the waste management market could consolidate or even return to firmer support levels before extending the trend.

The biggest risk for investors is valuation. The stock trades at a lofty 28x profit, but there is some justification and its peers are even more valued. The company has a strong track record of growth, stable cash flow and capital returns to generate value and a widening margin. Peers like Rollins Inc. NYSE: ROL, Waste Connections Inc. New York Stock Exchange: WCN AND Repubblica Servizi Inc. NYSE:RSG trades at 31x to 47x paying a lower yield, suggesting deep value in waste management and the potential for price/multiple expansion.

Before you consider waste management, you’ll want to hear it.

MarketBeat tracks Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and Waste Management wasn’t on the list.

While Waste Management currently has a “Moderate Buy” rating among analysts, top-rated analysts believe these five stocks are better buys.

View the five stocks here

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