About Waste Management
This business is straight up trash.
While most would be quick to assume that we’re just blatantly hurling insults in the direction of Waste Management, we’re not; the company’s business is actually trash.
As can be derived from the company’s name, Waste Management literally manages waste all around the globe, however much of its revenue stream flows from close to home. The company has around 26,000 trash transport vehicles, over 20 million commercial customers across the United States, Canada and Puerto Rico and is headquartered in none other than Houston, Texas.
Along with Waste Management’s extensive fleet and customer reach, the company also maintains numerous landfill disposal sites, recycling plants, production power plants among various other facilities that tend to the world’s waste.
If trash is involved, it would be somewhat surprising if Waste Management didn’t have anything to do with it being picked up and/or disposed of.
As it relates to how the company makes money, it is only natural that it gets paid for its pickup and disposal services (along with providing customers trash and recycling bins), which is a fairly simple and reliable business model.
Not only is it fairly easy to understand, one of the major draws from our perspective is the recession proof nature of the model itself. Primarily, no matter how bad the state of the economy becomes whether due to more COVID-19-related concerns, a recession, a depression or any other sort of global economic or financial turmoil, people and businesses will need their trash taken care of and tended to in a timely and reliable manner, or their business(es) will suffer and thus their livelihoods.
Finally, before we get into Waste Management’s core financial figures, we’d also like to add that the company is gigantic and we’d personally say it operates in and at the top of an oligopoly, especially in the United States. Truth be told, the company is the largest in its sector (in terms of revenue and market capitalization), where the runner-up is currently around $20 billion away in terms of market capitalization and approximately $6 billion off in terms of total revenue.
This is quite the moat if we’ve ever seen one.
The runner-up is Scottsdale, Arizona-headquartered trash giant, Republic Services. We also see local municipality trash companies as Waste Management’s competition, even though they aren’t as large or well known as the company in question.
Without further ado, let’s get right down to Waste Management.
Waste Management’s stock financials
Trading at around $156, Waste Management has a market capitalization of $64.4 billion, a price-to-earnings (P/E) ratio of 28.94 and distributes its shareholders an annual dividend of $2.60.
The main metric that is important to initially note is the company’s P/E ratio. Specifically, Waste Management’s indicates that the stock itself is mildly overvalued, as a P/E ratio of 20 is typically said to indicate that a company’s stock is trading at fair value or what it’s worth paying for and anything higher implies that it’s overvalued and investors would technically be overpaying for shares in the company.
This makes sense given WM’s impressive five-year shareholder return of just north of 90%.
This appears to be one of the classic scenarios (that we’ve experienced and discussed in previous articles) where a company’s stock price performs too well in recent years and has thus gotten a little ahead of itself.
Although this was great for investors who invested before or in the early innings of the Pandemic, it doesn’t bode well for value-oriented investors seeking to pick up a few shares at depressed levels. Nevertheless, this isn’t going to largely impact our ultimate decision regarding whether or not the company’s stock is worth considering investing in but rather it’s just a consideration that prospective investors should cope with and consider when making a final decision.
According to Waste Management’s balance sheet, the company’s executive team manages approximately $29 billion in total assets matched with just south of $22 billion in total liabilities.
One of the reasons we mentioned some of the moving parts within Waste Management’s network was to point out that this company, like other waste managers and industrial companies for that matter, has a sizable load of total liabilities relative to its total assets. However, in the case of WM we don’t see any glaring concerns regarding the company’s ability to chip away at its total liabilities as time goes on, especially given the recurring nature of their business model and relatively high switching costs imposed on its current customers. Also, we’re satisfied with the simple fact that WM’s total assets outweigh its total liabilities (by a wide enough margin) in the first place.
As it relates to Waste Management’s income statement, revenue over the past five years has remained strong, dependable and upward trending which isn’t necessarily something a lot of large companies could say, particularly during 2019 and 2020.
Waste Management bucked the trend and reported around $14.4 billion in total revenue in 2017 and subsequently reported total revenues of approximately $17.9 billion in 2021, trending to the upside during the years between.
This speaks to the company’s fortified, recession-resistant business model given the essentialness and the world’s need for their services, even during economic frothiness along with threats of another worldwide pandemic.
Additionally, we were quite happy to see that the company’s net income (according to the cash flow statement) has been very consistent, staying in the $1 billion area code over the past five years, also generating positive total cash from operations over the same time period. So far, this company has seemingly been immune (or largely so) to major economic shocks and downturns which is extremely rare and hard to find even in the most “safe”, blue chip publicly traded companies.
Waste Management’s stock fundamentals
This company’s trailing twelve month (TTM) net profit margin is absolutely no joke.
Specifically, Waste Management’s TTM net profit margin is presently perched at 11.55% relative to the industry’s average of -12.48%, according to TD Ameritrade’s platform.
The company’s ability to turn a far greater profit than the competition is nothing short of impeccable and is something we definitely don’t take lightly when analyzing a company.
In addition to its impressive TTM net profit margin, the company’s TTM returns on equity, assets and investment are all comparatively strong, remaining at or excruciatingly close to the competition’s average.
Should you buy Waste Management stock?
It is our personal view that the best time to pick up shares in this company’s stock, if you so wish, is when the greater overall economy nosedives and takes a larger plunge for the worst. Whether due to a new COVID-19 variant outbreak or interest rate or monetary policy-related strains continuing to impact the economy, we see all of these scenarios as great times to pick up shares in this quality company at a lower price-to-earnings multiple.
However, all things considered and solely on the basis of the company’s merit, we give Waste Management stock a “buy” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.