Waste Management (WM): No Glamor, but Reliability

Posted Aug 18th 2010 11:30AM by Steven Halpern
Filed under: Newsletters, Stocks to Buy, Green Stocks, Recession, Waste Management Inc. (WMI)

"Managing waste is about as far from glamorous as you can get. But it's essential, and offers relatively reliable growth and defensive qualities that should appeal to conservative investors," says growth stock expert Stephen Leeb.

The editor of The Complete Investor explains, "Waste Management (WM) is the largest waste-management operator in the U.S. and Canada, with about a 25 percent market share.

"The company serves 20 million municipal, commercial, industrial and residential customers throughout the U.S. At year-end 2009, the company had 367 collection operations, 355 transfer stations, 273 active landfill disposal sites, 16 waste-to-energy plants, 134 recycling plants and 111 beneficial-use landfill gas projects.

"Waste Management's largest business is collection of solid waste (58 percent of 2009 revenues). The company picks up garbage and takes it to transfer stations, recycling facilities or directly to disposal sites.

"The work is performed under multiyear contracts, giving the company exclusivity and largely predictable revenue streams.

"Waste Management's main disposal sites for trash are landfills. The company owns the largest solid-waste landfill network in North America. It also operates five hazardous-waste landfills in the U.S.

"Waste Management also owns or operates more than 20 waste-to-energy facilities and power-production plants in the U.S. There, solid waste is burned to create steam, which is sold directly to end users or used to produce electricity and sold in wholesale markets.

"In addition to several recycling and waste-reduction initiatives, the company continues to invest in waste conversion to energy. Recently, it bought a 40 percent stake in Shanghai Environment Group, the leading waste-to-energy company in China, which has surpassed the U.S. as the largest waste-generator in the world.

"Waste Management also is expanding its health-care services business, which helps in managing waste and reducing waste-related costs. These green and health-care operations together, while a small part of the company, offer good growth opportunities.

"Waste Management has a good balance sheet. It has a sizeable $8.4 billion in total debt, but this has remained steady, and the debt maturity dates are well spread out over several decades.

"Management expects to generate around $1.3 billion in free cash flow this year, more than enough to cover debt and dividend obligations.

"Waste Management has raised its dividend twice since late 2008, by a total of 17 percent. Shares trade at 14 times projected 2011 earnings. Current yield: 3.9 percent. Buy for predictable cash flow, conservative growth and good dividend income."

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