By Zacks Equity Research
August 3, 2015 6:20 AM
If you are looking for a stock in the Waste Removal Svcs industry, Waste Management, Inc. (WM) could be one to watch closely. Right now the company has a Zacks Rank #2 (Buy) and it has been seeing rising earnings estimate revisions as of late.
In fact, the full year consensus estimate has risen from $2.49/share to $2.54/share in the past 30 days, while six estimates have gone higher for the time frame and zero have gone lower. If that wasn’t enough, WM also has Style Score grade of ‘A’ on growth front and ‘B’ on value front so it could be worth considering from that perspective too.
The CEO on the conference call stated that earnings could approach $3.50 once everything is in place and they can sell more product out of the new SC plant. Some of today's manufacturing done in OK will be transferred to SC due to proximity. They have also been talking to customers in the southeast who are interested in Orchids products but the plant needs to be completed first. Finally if you look at today's stock price there is a swing of $1.20 which is a lot. Since good news has come out I think there is more interest in TIS but the small float has the stock trading in relatively wide swings.
Sentiment: Strong Buy
Lets not get ahead of ourselves. Remember this is a small company with a small float and anything can happen in either direction. There is a lot of hype now that investors actually listened to what management had to say. As you get further away from that conference call there will be less info and stocks generally tail off a little. Regardless of what people would like to see stocks follow news and ultimately earnings & cash flow. It is also hard for institutions to either initiate or expand a position in a small company. Personally I am in this for the long pull with both myself and my wife owning it in IRA's.
Sentiment: Strong Buy
Yes. I listen to every call and that is why I have continued to add to my holding while the price was down. Adding a new plant plus the mexican operation gives them ability to ramp up sales. THe company is only a $280M market cap. They are not fighting the laws of large numbers.
Production will not stay at these levels due to huge reductions in CAPEX. Even OPEC will struggle to maintain levels. In addition the 96 million barrels is not all light crude that trades at $48 or whatever. It also includes NGL's whose prices have also come down plus Canadian Tar sands oil. Low NGL and Natural gas prices have created a revolution in the chemicals industry in the US. I stand by my forecast. We are in the early stages of a great bull market which could go on for 10 - 15 years. The 2009 - 2013 was basically a cyclical bounce back. The 1982 - 2000 market allowed me to put my 3 adult children through colleges that are $65K per year today.
The amount of oil over supply is only a million or so barrels a day while existing fields lose 5 million barrels a day of production every year. The world needs to drill enough wells every year just to make up for those 5 million barrels. Demand is also starting to grow again as world wide gasoline sales have picked up 3%this year. The reduction in CAPEX and the fact there is no spare capacity easily pumped will push oil up faster than you think. Back in 1980 when oil tanked the world had a 20% margin of safety. Over the 35 years since then it is down to about 1.5%. It is also not boom or bust but part of a greater commodities cycle that is now down as a result of over investment. Going back to 1900 there have been 3 previous episodes where the down cycle ignited huge bull markets in stocks. When the S&P blew past the cyclical 2000 & 2008 highs in March 2013 it is similar to the pattern that signalled the other 3 great secular bull markets. Since oil has the least over supply it will be dragged higher as a result of economic expansion.
UPS to acquire technology-driven, non-asset based truckload freight brokerage, adding to portfolio with complementary revenue and operational synergies
UPS announces agreement to acquire Coyote Logistics for $1.8 billion
Expands portfolio, adding large scale non-asset based full-truckload (FTL) and transportation management services
Provides growth opportunities for UPS from high growth truck freight market expansion, Coyote organic growth, customer cross-selling
Synergies for UPS backhaul utilization and purchased transportation
Leadership continuity: CEO Jeff Silver, an industry veteran, will continue to lead Coyote, as a UPS subsidiary
Coyote employees, expertise, systems and culture to be supported
Accretive to earnings in 2016
In the short term the stock will be volatile due to the small float. On the positive side only 38.5% of shares are owned by institutions. As TIS develops over the next few quarters this will be a huge source of funds to support much higher prices. We have about 18 months of getting all the new facilities running on all cylinders. There is also a lot of room for margin expansion as management will get product manufactured and shipped form the closest of their three sources. That is not the case today. So we should see both big upside in revenues and then better earnings associated with those revenues due to margin expansion. This is a 2 or more year play because the headline numbers have not been great the last year or so.. A few good quarters back to back and the dividend will attract the institutional investors.
Sentiment: Strong Buy
Looks like pure stock investors (including institutions) also realized that the good report plus value opportunity presented earlier today are starting to win the day. My wife and I own a bunch of this stock in our IRA's. All nine of my grandchildren also own in UGMA accounts.
Eventually NGL's will recover and DCP will add to the bottom line.
PSX had a good quarter. Only downer is DCP midstream JV which is hurt by NGL prices. You would think the stock would be up out of the blocks today but it is down. This stock is in too many of the ETF's that also include oil and gas production companies. It is inching higher as individual stock investors start to offset the ETF effect.
Reports Q2 (Jun) adj earnings of $1.83 per share, $0.02 better than the Capital IQ Consensus Estimate of $1.81.
Construction of the 100,000 BPD Sweeny Fractionator One and the 150,000 BPD Freeport LPG Export Terminal continued during the quarter. The fractionator is approximately 90 percent complete, while the LPG Terminal construction is nearly 50 percent complete. Both projects are on schedule and on budget with startup expected in the fall of 2015 and the second half of 2016, respectively.
Co's worldwide refining crude utilization was 90 percent and clean product yield was 84 percent in the second quarter of 2015.
Increased quarterly dividend 12% to $0.56/share. (They raised it in May during the quarter)
They increased the dividend a number of times so that it matches the rate of the acquired company. It is now $0.4575 per quarter X 4 = $1.83 that you calculated. Based on the $2.72 earnings estimate WEC is now within the 65 - 70% earnings payout rate. It how ever is a much smaller % of cash flow which is about 2X the earnings.
Even if the Fed raises rates the ten year will be lucky to see 3% in the next few tears. look at a chart of long rates from 1930 to early 1960's. It took years to get rates back. There is little or no inflation and a lot of slack in the economy. Forget unemployment, the participation rate is the lowest in like 40 years. There is no normal for interest rates. Rates are based on the the environment. The Fed does not want to jump the gun. In the late 1930's they were coming out of the depression and then in 37 - 38 a number of policies were instituted, including raising taxes that drained money out of the system and unemployment shot back up close to 20 % from low teens. The most recent past is not a good predictor of future economic growth.
Regardless of all the BS they read out at the beginning of the conference call it is all about the strong dollar. Until CL can compare earnings to a similar dollar we are dead in the water at $65 - $70 per share. There is at least another tough 2 quarters to go.
You have to listen to all the conference calls. Management has led us through the whole capital expansion step by step and today's call confirms everything they have said. They needed to expand nationally to service national chains that do not what to deal with a lot of small players. That is why they were able to do the JV with the Mexican company because that company did not have enough reach into the US to gain traction. TIS became interesting a couple years ago when they had to rent warehouse space do to growth. Follow the CAPEX. They now have a lot of flexibility and capacity to drive both volume and margins. I have been adding to my holdings while the price was down. In the next couple years the CEO said they want to drive earnings to $3.50/share. Current multiple is about 20X earnings when you divide the 2015 estimated $1.28 EPS into $26 stock price. Could easily see $60 - $70 price per share. Profitability is definitely on the rise and stock price will follow. It is a two year process to get all the new production up and running.
Sentiment: Strong Buy
Don't forget there is another plant in SC under construction which will expand their reach. They deal with a lot of national companies who do not want to deal with a lot of small suppliers. That is why they were able to make the deal with the Mexican company. That company was having trouble with sales because they were not a national franchise. That deal worked out well for both companies. I have continued to add shares at these low prices. I also agree it is a long term investment and pays a good dividend while you wait.
Sentiment: Strong Buy
Second Quarter results:
Net sales increased $13.1 million, or 45%, to $42.3 million, compared with $29.2 million in the same period of 2014.
Adjusted net income for the second quarter of 2015 was $3.6 million, compared with $2.1 million of adjusted net income in the same period of 2014.
Adjusted net income per diluted share for the second quarter of 2015 was $0.37 per share compared with $0.25 of adjusted net income per diluted share in 2014.
Adjusted EBITDA for the second quarter of 2015 totaled $8.4 million, which represented an increase of $2.6 million, or 44%, compared to the same period of 2014.
Net sales of converted product increased $12.1 million, or 43%, to $39.8 million, compared to $27.7 million in the same period of 2014.
Net sales of parent rolls increased $1.0 million, or 71%, to $2.5 million, compared to $1.5 million in the same period of 2014, primarily due to successful start-up of the new paper machine in Pryor, OK.
It is a shame we cannot export WTI because the oil coming out of shale has more or less maxed out our ability to refine it. Many refineries are not set up to refine such high quality oil. We also export other refined products besides gasoline, most notably Naphtha. There are also some mini oil refineries being built that only refine parts of the oil upfront. Example is one joint venture in North Dakota where the Diesel molecules are extracted and the balance of the crude shipped by rail to another refinery to be further processed. The diesel is then marketed locally in ND. Some of this is also going on in Texas where the balance is being exported.
Fed hikes will be slow and low over the next 10 years or more. Take a look at long term interest rates , especially from 1930 - 1055. The 30 year probably averaged around 3- 3.5%. What happened in 2007 - 2009 is very similar to what happened during the 30's depression. The main difference is that the Fed eased and used other measures to keep the interbank lending system from locking up. Tremendous wealth destruction. Similarly look at the inflation that started in the late 1960's. It took years to beat it out of the system. People think that getting 5 - 7% or more on CD's is normal. It's not. Low inflation equals low rates. Commodity prices are also down and will be down for years. The beginning of high commodity prices in late 1990's due to lack of investment over the 1982 - 2000 bull market led to tremendous investment in commodities. Now we are swamped in them and it is not just because of China. Utilities and pipelines will be a great investment for years to come.