Waste Management, Inc.’s (WM - Free Report) stock has had an impressive run on the bourse year to date. Shares have returned 32.8%, significantly outperforming the 25.6% rally of the industry it belongs to.
With an expected long-term earnings per share growth rate of 8.6% and a market cap of $50.1 billion, Waste Management seems to be a stock that investors should retain in their portfolio for now.
Service Demand to be in Good Shape
While the output of garbage and recycling grows with rising population, industrialization and urbanization, places to store or dump garbage will reach maximum capacity and start to decline. Landfills will be filled and closed. This coupled with rising use of technology in collection and recycling processes will lead to increase in garbage removal prices, thus creating a competitive advantage for Waste Management, which is already a leader in the industry.
Garbage production is non-stop, irrespective of economic condition, keeping demand for the company’s services stable. Moreover, the company generates revenues from customers across diverse industries. This makes Waste Management stock a good defensive play.
All But Recycling Business Going Strong
While the company’s recycling line of business is marred by Chinese ban on import of recycled materials, its collection, landfill and transfer businesses remain in good shape. In the last reported quarter, yield in both landfill and MSW (municipal solid waste) exceeded target of 3% with MSW yield at 3.6% and core price in the landfill line of business at 4%.
Management expects collection and disposal businesses to drive strong earnings growth and more than offset the decline in recycling business.
Ongoing conversion of the collection vehicle fleet to natural gas will reduce the company’s exposure to fuel cost risk, positively impacting profitability.
Waste Management, Inc. EPS Diluted (TTM)
A Consistent and Healthy Dividend Payer
Demand for Waste Management’s services remain fairly stable through the economic cycle enabling it to generate stable revenues and cash flows and pay out stable dividends.
The company has been increasing dividends for the last 16 years. It has increased its payout in the past three years. It paid out $802 million, $750 million and $726 million in dividends during 2018, 2017 and 2016, respectively. A strong cash position and a balanced capital allocation plan should allow the company to continue growing dividends.
Zacks Rank and Stocks to Consider
Waste Management currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the broader Zacks Business Services sector include ICF International (ICFI - Free Report) , Charles River Associates (CRAI - Free Report) and Visa (V - Free Report) , each carrying a Zacks Rank #2 (Buy).
The long-term expected EPS (three to five years) growth rate for ICF, Charles River and Visa is 13%, 13% and 16.6%, respectively.
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