On Aug 29, we issued an updated research report on leading comprehensive waste management services provider, Waste Management Inc. (WM - Free Report) .
Waste Management is successfully executing its initiatives to refocus on core business activities and instill price and cost discipline to achieve better margins. At the same time, the company aims to improve customer retention by providing better service and higher value solutions. Waste Management's successful cost-reduction initiatives have further helped it achieve remarkable gross margin expansion and EBITDA (earnings before interest, tax, depreciation and amortization) growth over the quarters.
In addition, Waste Management plans to return significant cash to shareholders through healthy dividends and share repurchases in the future. A steady dividend payment policy is part of Waste Management’s long-term strategy of providing attractive risk-adjusted returns to its stockholders. The company’s investment strategy takes a holistic view of the rapidly evolving market and deploys a dynamic capital allocation approach to execute its growth strategy. Furthermore, decent dividend increases at periodic intervals have been one of the company’s most attractive features.
With strong yield, volume and cost performance, the company reiterated its 2017 guidance. It continues to expect adjusted earnings in the range of $3.14 to $3.18 per share. Free cash flow is expected between $1.5 billion and $1.6 billion. For the third quarter, the company expects to repurchase $500 million shares.
With a diligent execution of operational plans, the stock has outperformed the industry in the last three months with an average return of 5.7% compared with 2% gain for the latter.
However, stringent government regulations are likely to contract margins as compliance with such regulations increases the operating costs for the company. In order to develop or operate a landfill or any waste management unit, facility permits and other governmental approvals are necessary. These permits and approvals are often difficult to obtain, are time consuming and costly and could restrict its operations. All these are likely to impact the company’s profitability in the long term.
Nevertheless, we remain impressed with the solid growth prospects of this Zacks Rank #3 (Hold) stock. Better-ranked stocks in the industry include S&P Global, Inc. (SPGI - Free Report) , Intertek Group plc (IKTSY - Free Report) and Recruit Holdings Co., Ltd. (RCRRF - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
S&P Global has a solid long-term earnings growth expectation of 12.5%. It topped estimates in each of the trailing four quarters with an average positive earnings surprise of 9.5%.
Intertek Group has a healthy long-term earnings growth expectation of 13%
Recruit Holdings is currently trading at a forward P/E of 25.1x.
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