NEW YORK (AP) -- Waste Management Inc.'s stock fell more than 5 percent on Wednesday as a Morgan Stanley analyst lowered the waste company's rating because its financial results may disappoint going forward.
THE SPARK: Analyst Vance Edelson cut Waste Management's rating to "Underweight" from "Equal-weight," and cut his profit expectations for the Houston company. The analyst said in a client note that Waste Management's results have been lackluster, but it has managed to outperform its rivals in part because it has limited exposure abroad.
"We do not expect a bounce after years of poor fundamentals," Morgan Stanley said.
THE BACKGROUND: In April, Waste Management reported a decline in first-quarter net income as overhead costs increased and prices for the recycled commodities that it collects fell. Revenue climbed, but the company's adjusted earnings and revenue results missed Wall Street's expectations.
Edelson said that the declining recycled commodity prices are pressuring Waste Management, with prices off 15 percent in the last year. The analyst also believes that the company's non-core businesses — like deals with Home Depot Inc. and Whole Foods Market Inc. — are a potential distraction.
"Nearly all have forced one-time charges just over the past year, with little visible benefit," Edelson wrote.
The analyst said he finds rival Republic Services Inc. to be a more appealing stock pick, as it "has far fewer non-core distractions, is cheaper and is buying back a higher percentage of shares."
Waste Management is expected to report its second-quarter financial results on July 26.
SHARE ACTION: Shares of Waste Management declined $1.82, or 5.5 percent, to $31.25 in afternoon trading. The stock has traded in a 52-week range of $27.75 to $37.42. The shares are basically flat for the year to date, having closed at $33.07 on Tuesday.