Shares of Waste Management, Inc. (WM - Free Report) have gained 24.4% in the past year, outperforming the 19.8% rise of the industry it belongs to.
With an expected long-term earnings per share growth rate of 8.7% and a market cap of $43.2 billion, Waste Management seems to be a stock that investors should retain in their portfolio for now.
What Bodes Well for Waste Management?
Rising environmental concerns coupled with stringent government rules and regulations for sustainable waste management are expected to keep business opportunities flowing in for Waste Management. The company’s solid waste business remains in good shape and continues to drive cash and earnings. Traditional solid waste internal revenue growth from volume came in at 3.1% or 2.4% on a workday adjusted basis in the fourth quarter of 2018.
Waste Management, Inc. Revenue (TTM)
Waste Management continues to focus on differentiation and improvement, and instill price and cost discipline to achieve better margins. Cost-reduction initiatives have helped the company achieve significant EBITDA growth over the quarters and are expected to continue doing so in the upcoming ones. In the fourth quarter of 2018, adjusted operating EBITDA of $1.09 billion was up 7.2% year over year. Adjusted operating EBITDA margin improved 50 basis points (bps) to 28.4%.
The company is investing significantly in technology, capital equipment and human resource to improve customer service and generate strong returns. The recent acquisition of Petro Waste Environmental is expected to expand the quality of its solid waste disposal services offered to oil and gas producing customers operating in Texas.
Despite riding on significant growth prospects, Waste Management is not free from overhangs. The company has a debt-laden balance sheet and faces seasonal fluctuations in revenues. As of Dec 31, 2018, long-term debt was $9.59 billion while cash and cash equivalents were $61 million. However, we believe that a robust solid waste business and cost-reduction initiatives will continue to boost Waste Management’s top and bottom lines.
Zacks Rank & Stocks to Consider
Currently, Waste Management carries a Zacks Rank #3 (Hold).
Some top-ranked stocks in the broader Zacks Business Services sector are Insperity (NSP - Free Report) , MAXIMUS (MMS - Free Report) and Automatic Data Processing (ADP - Free Report) . While Insperity sports a Zacks Rank #1 (Strong Buy), both MAXIMUS and Automatic Data Processing carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The long-term expected EPS (three to five years) growth rate for Insperity, MAXIMUS and Automatic Data Processing is 18%, 10% and 13%, respectively.
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