Waste Management: Waste Not, Profit Alot

Posted Aug 23rd 2010 2:20PM by Joseph Lazzaro
Filed under: Stocks to Buy, Waste Management Inc. (WMI)

Waste Management (WM), first discussed here on March 25, 2009 at a price of $25.74, has seen its shares meander this summer, but just look on that sideways action as an extended opportunity to scoop-up shares of a promising recycler.

Look for Waste Management to post a 2-3% revenue increase in 2010, as higher prices offset modestly lower volume.

The recession hurt WM's results 2009, as the commercial impact of reduced industrial output rippled throughout the U.S. economy. But in the second half of 2010, volume should start to increase again.

Further, long-term the trend looks very good for WM, and here's why: 20 million customers, 273 owned/operated landfills, 16 waste-to-energy plants, 98 recycling plants, and more than 108 beneficial-use landfill gas projects. Margins should also improve in 2010. A decent $1.26 annual dividend complements the capital appreciation story.

The First Call FY2010/FY2011 EPS estimates for WM are $2.10 to $2.37.

Technically, Waste Management's sideways action appears to be over, with a bottom in-place at/near $31.

2010 Outlook: I view Waste Management as a long-term play, but if investors are looking to sell WM within the year, it's probably best to take your profits after it rises to $38-39, if it fails to clear $40.

Stock Analysis: I consider Waste Management to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 25% position in MN now; then buy another 25% in one month, if U.S. economic conditions don't worsen substantially. Under any circumstance, I wouldn't buy more than 50% of my WM position before October 2010 and I'd put a sell/stop loss at: $17.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: waste management, wm