Performance and Future Growth Prospects
In the first quarter of 2013, revenue for Waste Management, Inc. (NYSE:WM) grew by 1.2% year over year. Operating expenses increased by $43 million and most of this increase came from higher operating costs of acquired operations. The company returned $170 million to shareholders in the form of cash, and reported earnings of $0.36 per share. A combination of restructuring charges and impairments of investments caused the decline in earnings. As these factors are unlikely to persist, the company’s profitability remains intact.
Considering a broader perspective, we see that the company’s profit margins range above 5% in the past year. From 2009 to 2012, the operating revenues of the company have projected a CAGR of 5%. Also, capital expenditures have shown a CAGR of 17% since 2010.
In order to boost revenues, the company has had a strong focus on acquisitions. At the beginning of the year, Waste Management, Inc. (NYSE:WM) announced the acquisition of Greenstar. This move is essentially aimed at improving the company’s recycling capacity. Furthermore, the current level of energy production, through incineration or landfill productions, is also likely to improve in the future.
Waste Management, Inc. (NYSE:WM) is currently offering a dividend yield of 3.58%, and the company has consistently increased dividends in the past. The company’s efforts to consistently pay and improve its dividends make it extremely attractive for investors.
Competitor Landscape
Republic Services, Inc. (NYSE:RSG) is the biggest competitor for Waste Management. A $5 billion merger between Allied Waste and Republic Services, Inc. (NYSE:RSG) created the second largest solid waste management company in the country. Waste Management does not just collect solid waste; the company also holds landfill assets. On the other hand, Republic added Allied’s landfill assets after the merger. Landfills are extremely lucrative assets used to store solid waste, which the companies later try to use in different applications such as energy generation and other chemicals.
Before the merger, Republic had to use third-party assets to store its solid waste. Waste Management has invested in energy generation from waste, and slowly the segment is improving. Waste to energy segment will be a major business segment for the company by 2020. On the other hand, Republic Services, Inc. (NYSE:RSG) has been slow in investing waste to energy facilities, which might hurt the company. Currently, Republic remains behind Waste Management, and its portfolio of assets is weaker than its larger counterpart.
Waste Connections, Inc. (NYSE:WCN) has been able to maintain double digit growth as compared to its bigger competitor: Waste Management. As a result, the stock has gained about 16% over the past six months. Environmental services companies have been doing well despite slowing growth in the industry, and the results have translated into an increase in stock prices. Almost all of the companies in the sector have strong pricing power, which allows them to extract more revenue from customers. Waste Connections, Inc. (NYSE:WCN) have especially been successful in maintaining its pricing strength in its market – the markets have less pressure, which allows the company to maintain its pricing strength. The company is expanding its operational base, which should allow for margin expansion.
Conclusion
Waste Management, Inc. (NYSE:WM) is a safe long-term investment, since the company’s pricing power gives it a fair chance at growth. The company’s commitment towards consistent payment and improvement in dividends ensures consistent income for shareholders. Growth for Waste Management, Inc. (NYSE:WM) might remain depressed in the short term; however, the safety of dividends and steady long-term growth makes it an ideal pick for income investors.
The article Waste Management Is An Ideal Pick For Income Investors originally appeared on Fool.com and is written by Ishtiaq Ahmed.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
