Is Waste Management Inc. Worth Considering for Your Portfolio??

Waste Management

Founded in 1968, Waste Management has been providing waste disposal services to neighborhoods nationwide. With more than 20 million customers, Waste Management provides its services to both residential and commercial clients across the nation. The company has been heavily focused on its core services, waste collection recycling services, landfill operations, and waste-to-energy company facilities.  

The Dutch origins trace back to 1983 when a Dutch immigrant, Harm Huizenga began a waste disposal service in Chicago. By 1963 the business was controlled by Harms’s grandson, Wayne who began working with Dean Buntrock and Larry Beck. The three of them founded Waste Management Inc. 

Waste Management was able to rapidly expand through the process of acquisitions. By 1982 they had become the world’s largest waste disposal company. In 1982 WM was merged with USA Waste Services which solidified the company’s power of the industry and marked it an industry leader. 

With a reported revenue of over $20 Billion in 2023 Waste Management has been able to demonstrate their ability to consistently scale their operations while maintaining market leadership share across waste collection, recycling, and disposable services. Waste management operated with a 27.6% EBITA Margin in 2023 which was a small boost compared to 2022. WM has been able to remain financially stable from its strategic investments in recycling and waste-to-energy operations.

In 2023 Waste Management also reported a 35% return on equity compared to 33% in 2022 which shows their effective capital deployment strategies as well as strong shareholder returns. They also reported a small increase on the turn of invested capital which rose to 11.27% in 2023 from 10.39% in 2022. These improvements reinforce the company’s focus on sustainable growth by investing in technologies and capabilities that will enhance profitability while staying environmentally responsible. 

The Company’s valuation metrics like its Price-to-earnings and its Price-to-book ratios show significant confidence in the company. Waste Management had a P/E ratio of 32.76 in 2023 compared to an industry average of 23. This shows that investors are willing to pay a premium for WM stock. They have also reported a Price to Book ratio of 10.86 which is significantly higher than the industry average at 2.82. These metrics represent Waste Management's established brand value, assets, and profitability potential. 

Waste Management reported an operating cash flow of  $4.9 billion which represents the company’s strong ability to convert its revenue into cash. The company’s free cash flow was up by $100 million from two billion in 2022 to $2.1 billion in 2023 showing an effective cash management strategy. These strong cash flows have enabled Waste Management to maintain a dividend and frequent share repurchase programs, which are song signals for investor confidence.  

Waste management holds a dominant market position across North America with a wide variety of services that include waste collection, recycling, disposal services, and more. The total U.S. waste management market was valued at over $340 billion in 2023 with predictions of a 5.2% compound annual growth rate for the next 5 years. This growth will be driven by population expansion, urbanization, and public awareness of the need for sustainable waste management practices. 

Waste management operates in a competitive landscape with competitors like Republic Services Inc., Waste Connections, GFL Environmental, and many more local waste services. Waste Management is the market leader in waste with revenues surpassing its nearest competitor by over $7 billion in revenue, highlighting Waste Management's ability to operate at scale and dominate the market. This extra revenue allows Waste Management to invest in technology and sustainable infrastructure like waste-to-energy allowing them to remain a dominant player in the industry. 

Waste Management's extensive infrastructure and ability to create high barriers of entry have been able to secure its moat in the industry. Entering the waste services business requires significant capital investments and physical assets that make it hard for new competitors to enter the market. Its landfills operate as the highest barrier of entry because of the regulatory restrictions around them making it very difficult for new companies to establish more landfills. 

Waste Management is well positioned to continue its growth through both organic and inorganic initiatives like acquisitions and strategic partnerships. The company’s organic growth will be propelled by several factors like its sustainable services, service diversification, and digital transformation that will allow it to optimize operations and increase efficiency. WM has continued to invest in its services allowing them to broaden their offerings to include specialized waste streams that will help them capture new clients who seek comprehensive waste solutions. 

In recent years Waste management has grown from several inorganic growth methods such as mergers, acquisitions, and strategic partnerships. Most recently WM bought Stericycle for $7.2 Billion, Stericycle is a leader in medical waste services. This acquisition allowed WM to expand its services into the healthcare sector. Waste Management also partners with technology providers and local environmental organizations that help them develop solutions that promote sustainable initiatives.  

Several factors will lead to a catalyst in Waste Management’s growth trajectory including regulatory support, market demand, and technological advances. With growing awareness around environmental regulations and government incentives for sustainable waste practices, Waste Management is prepared to offer innovative solutions for its customers. Along with the increasing market demand for recycling and sustainable disposal services.

Although Waste Management is a market leader with a dominant share of the waste services sector it still faces a variety of challenges amongst its operational, market, and valuation risks. As well as regulatory challenges that are related to the waste management business. These factors combined can pose significant risks for Waste Management’s valuation and investor sentiment.  

Another risk for Waste Management is its ability to adapt quickly to unforeseen events like labor shortages, equipment failures, and natural disasters. Along with all the challenges that come with operating a large fleet of vehicles the risks related to maintenance, fuel costs, and compiling with local regulations can have a large influence on operation expense. 

Also, Waste management faces risks that could influence their valuation and investor confidence. The company operates with a relatively high P/E and P/B ratio compared to the industry averages. Investors are currently willing to pay a premium for Waste Management but if it starts to fail its growth expectations the company could see a sharp correction in its valuation leading to a sharp decline in stock price. 

Waste Management operates with a strong market share as well as an established infrastructure that has cemented it to become an industry leader. However, they still face challenges that include regulatory compliance, service disruptions, and their high valuation metrics. Given their ability to leverage their infrastructure and continue to expand through acquisitions and product offerings. 

The Bad Boys at Azar Capital Group like the stock. The Group initiates a buying opportunity for Waste Management, they are well positioned to continue to take market share of the waste management sector and eat up their competition. 

Disclosure

This analysis is for informational purposes only and should not be considered financial advice. Investors are encouraged to perform their due diligence or consult with a financial advisor before making investment decisions.