Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Waste Management, Inc. (WM), Republic Services, Inc. (RSG), Veolia Environnement SA (ADR) (VE): Could You Turn Trash Into Treasure With These Stocks?

Page 1 of 2

Garbage is big business. It might seem silly, but it’s true. The industry might seem more appropriate for a segment on Dirty Jobs, but there’s serious money to be made from trash. In fact, one of the major industry players, Waste Management, Inc. (NYSE:WM), is a favorite among income investors for its market-beating yield.

After considerable rallies, Waste Management, Inc. (NYSE:WM) and close peer Republic Services, Inc. (NYSE:RSG) now trade at multi-year highs.

In that light, is there still time for investors to strike gold from garbage? Or are you better off tossing these stocks into the dumpster?

Disturbing Debt

Waste Management, Inc. (NYSE:WM) and Republic Services, Inc. (NYSE:RSG) are both industrials, meaning they have lots of long-lived assets on the balance sheet. As is usually the case, lots of long-term assets are usually accompanied by a lot of long-term debt used to finance those assets.

At the same time, it’s not a great time to have a lot of debt on the balance sheet, particularly if that debt needs to be refinanced over time. Interest rates are on the rise, and I’m nervous about investing in companies with a lot of debt on their books.

To that end, at the end of the first quarter Waste Management, Inc. (NYSE:WM) had $9 billion in long-term debt on its balance sheet and just $6.7 billion in total shareholder’s equity. That means its long-term debt to equity ratio stands at a nauseating 134%.

Republic Services, Inc. (NYSE:RSG)’s long-term debt to equity ratio, meanwhile, sits at a better (but still uncomfortable) 91%.

Is growth a source of optimism?

Of course, high debt levels aren’t a huge cause for concern if the companies can grow at rates that make their interest expenses acceptable. Last year, Waste Management, Inc. (NYSE:WM) saw its revenues inch up 2% and its diluted earnings per share drop 14% from the year prior.

At the same time, Republic Services, Inc. (NYSE:RSG) reported a 1% drop in sales and flat diluted earnings per share in 2012, year over year.

Unfortunately, these growth figures aren’t exactly inspiring, and when you consider that each stock trades for more than 20 times trailing EPS, it’s looking more and more like these stocks are fully valued.

An international candidate to consider

An interesting alternative in the waste management industry is Veolia Environnement SA (ADR) (NYSE:VE). France-based Veolia Environnement SA (ADR) (NYSE:VE) does have exposure to the United States, a plus for investors reluctant to allocate capital to the shaky European economy.

Another huge plus for potential investors is the company’s gigantic dividend yield. Veolia Environnement SA (ADR) (NYSE:VE) pays an annual dividend, and according to Yahoo! Finance, 2013’s payout of $0.91 per share amounts to a greater-than 7.5% yield at recent prices.

Page 1 of 2
Loading Comments...