Tags: Waste | Management | recovery | WM

Waste Management Wins Marketing War, but Relies on Recovery

By    |   Wednesday, 15 August 2012 10:51 AM

Waste Management (WM) has won, to a degree, the marketing war, turning its brand from simple trash disposal into one of a company focused on alternative energy and responsible recycling. Nevertheless, given its market leadership position, analysts point out that stock price growth will depend on increased demand for waste services, a factor beyond management control.

Waste Management provides comprehensive waste management services in North America. Its subsidiaries provide collection, transfer, recycling, and disposal services. The company also is a leading developer, operator and owner of waste-to-energy and landfill gas-to-energy facilities in the United States.

WM customers include residential, commercial, industrial and municipal customers throughout North America. Through core waste management services, the company owns or operates 271 landfill sites, the largest network of landfills in the industry, and manages 287 transfer stations that consolidate, compact and transport waste.

Waste Management turns waste into power as a sideline. “One method we use involves recovering the gas produced naturally as waste decomposes in landfills for use in the generation of electricity,” WM management said in a recent filing.

“We also use waste to create energy through a highly efficient combustion process. Our waste-to-energy subsidiary, Wheelabrator Technologies Inc., operates 22 plants that produce clean, renewable energy.” In addition, WM is a leading recycler in North America, handling materials that include paper, cardboard, glass, plastic, metal and electronics.

Waste Management has a market cap of $16.32 billion in a sector, commercial services and supplies, where the average company size is $1.72 billion. Its trailing 12-month P/E ratio is 17.78 and its five-year projected price-to-earnings-growth (PEG) ratio is 4.45, compared to 1.93 for the sector.

Its projected earnings per share growth for the coming year is 10.19 percent, compared to a sector average of 15.09 percent.

Strong cash

Analysts are mixed on WM, with a buy call from Standard & Poor’s Equity Research but an underperform rating from Morgan Stanley.

“Our buy recommendation is based on our view that commercial and industrial volume will gradually recover. We also expect WM to continue to expand and generate strong cash for ‘tuck-in’ acquisitions, share buybacks and dividends, while a new restructuring program aids
margins,” S&P analysts wrote on Aug. 10.

“Risks to our opinion and target price include a significant rise in fuel costs, a prolonged downturn in the U.S. economy, a sharp drop in recycling and energy prices, a lower customer retention rate due to competitive pricing, and inability to raise prices enough to meet return on invested capital (ROIC) goals."

Waste Management next reports on Oct. 25.

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