Shares of Waste Management (WM - Free Report) have gained 25.4% year to date, outperforming 22.8% growth of the industry it belongs to and 24% rise of the Zacks S&P 500 composite.
Let’s delve deeper into the factors which justify the stock’s retention in investor’s portfolio.
What’s Driving Waste Management?
Waste Management continues to execute its core operating objectives of focused differentiation and continuous improvement, and instill price and cost discipline to achieve better margins. Focused differentiation through capitalization of extensive assets ensures profitable growth and offers competitive advantages. The company's successful cost-reduction initiatives have helped it in accomplishing remarkable gross margin expansion and EBITDA growth over the quarters.
Strong yield and volume growth in the company’s collection and disposal business continue to boost revenues. Solid performance in its traditional solid waste business continues to improve cash and earnings. Waste Management expects the momentum to continue in its solid waste lines of business.
The company has been a consistent and healthy dividend payer, apart from rewarding its shareholders through share buybacks. During the first nine months of 2019, Waste Management paid out dividends worth $658 million and repurchased shares worth $248 million. In 2018, the company paid out $802 million in dividends and repurchased shares worth $1.004 billion. Such moves indicate its commitment to create value for shareholders and underline confidence in its business.
In spite of significant growth prospects, Waste Management is not free from headwinds. The company has a debt-laden balance sheet. As of Sep 30, 2019, long-term debt was $13.15 billion while cash and cash equivalents were $2.92 billion. High debt may limit its future expansion and worsen risk profile.
Seasonality causes considerable fluctuations in Waste Management’s revenues. Operation in a highly competitive and consolidated waste industry is a concern. This is because increasing price becomes difficult in such a fiercely competitive situation, thereby weighing on the company’s top line.
Zacks Rank & Stocks to Consider
Currently, Waste Management carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Zacks Business Services sector are Global Payments (GPN - Free Report) , Mastercard (MA - Free Report) and Cardtronics (CATM - Free Report) . While Global Payments and Cardtronics sport a Zacks Rank #1 (Strong Buy), Mastercard carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term expected EPS (three to five years) growth rate for Global Payments, Mastercard and Cardtronics is 17%, 15.9% and 4%, respectively.
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