Waste Management, Inc. WM has experienced a 17% increase in its stock price year to date, slightly lagging behind the 19.1% rise of the industry and the 17.3% growth of the Zacks S&P 500 composite index.
WM’s performance is in line with its closest competitors, such as Republic Services RSG, which has seen a 25.8% gain, and Clean Harbors CLH, which has surged 38.5% during the same timeframe.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Analyzing WM’s short-term price movements reveals a modest 1.7% increase over the past six months, 1.5% over the last three months and a 4.1% rise in the past month. These trends suggest that the stock may currently be in a correction phase.
In the latest trading session, WM’s stock closed at $209.31, close to its 52-week high of $225. The stock is trading just below its 50-day moving average, indicating a somewhat bearish sentiment among investors.
Let’s examine the various factors influencing the company’s performance and prospects to see if it’s the right time to invest in WM.
WM’s Strong Industry Position
Although waste is something we typically dispose of, the reverse often holds true for stocks of companies that manage waste. These stocks tend to offer steady returns with low volatility, as demand for waste management services remains relatively stable throughout economic cycles, and WM is no exception.
The waste removal services industry is currently robust, with revenues, income and operating cash flows increasing over the past four years, reaching pre-pandemic levels. Population growth, industrialization, and urbanization have led to a significant rise in waste generation and recycling. However, the availability of landfill space has decreased as landfills reach capacity and close, creating new opportunities for waste management companies. Additionally, the adoption of advanced technology and modern collection and recycling solutions is on the rise.
WM continues to implement core operating strategies focused on differentiation, continuous improvement, and enforcing price and cost discipline to enhance margins. While leveraging extensive assets for long-term growth and competitive advantage, the company also emphasizes cost control and process improvement to elevate service quality.
WM’s Reliable Dividend Payout
Waste Management boasts a significant market capitalization and maintains a consistent dividend and share repurchase policy. This commitment to returning value to shareholders makes WM an attractive option for investors seeking long-term wealth accumulation.
In 2023, 2022 and 2021, the company repurchased shares worth $1.3 billion, $1.5 billion and $1.35 billion, respectively. Additionally, it paid out $1.14 billion, $1.1 billion and $970 million in dividends during those years, respectively. Waste Management plans to continue returning substantial cash to shareholders through healthy dividends and share repurchases in the future.
The Stericycle Acquisition
Waste Management is poised to acquire Stericycle, with the deal expected to close as early as the fourth quarter of 2024. WM anticipates that the acquisition will be accretive to its earnings and cash flows within one year of closing, with more than $125 million in annual run-rate synergies.
Stericycle holds a leading position in the growing medical waste industry. The acquisition will add complementary business platforms to enhance WM’s comprehensive waste and environmental solutions. However, investors should monitor how the acquisition impacts the company’s pricing discipline, especially since Stericycle has faced challenges in maintaining pricing power.
WM Stock Seems Overvalued
While WM’s growth prospects are promising, its current valuation appears elevated. The stock is trading at a trailing 12-month Enterprise Value/EBITDA ratio of 15.43X, which is above the industry average of 12.42X.
Image Source: Zacks Investment Research
The forward 12-month Price/Sales ratio for WM stands at 3.74X compared to the industry average of 2.41X.
Image Source: Zacks Investment Research
WM Has High Prospects, But Timing is Key
Despite WM’s strong performance and growth prospects, the stock’s high valuation suggests a need for caution. Investors should consider a “Hold” or “Wait and See” strategy at this time. While the company’s fundamentals remain solid, entering the stock at its current valuation may limit upside potential. Monitoring the stock for more favorable entry points or waiting for additional clarity on the Stericycle acquisition could provide better investment opportunities.
WM currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Waste Management, Inc. (WM): Free Stock Analysis Report
Republic Services, Inc. (RSG): Free Stock Analysis Report
Clean Harbors, Inc. (CLH): Free Stock Analysis Report