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3 Stocks to Buy From the Promising Waste Management Industry

The gradual resumption of business activities and reopening of the economy have led to increased waste production in the industrial and commercial sectors. These should enhance business opportunities for companies in the Zacks Waste Removal Services industry. Notably, rising environmental concerns, rapid industrialization, an increase in population and an expected increase in non-hazardous waste will remain key drivers of the industry, given the significant rise in garbage and recycling. Also, technology adoption and the use of advanced collection and recycling solutions are expected to pick up pace.

Waste Management, Inc. WM, Clean Harbors, Inc. CLH and Sims Limited SMSMY are some of the stocks that are likely to gain from the above-mentioned favorable industry trends.

Industry Description

The Zacks Waste Removal Services industry comprises companies engaged in the collection, transportation, treatment, disposal, inspection and regulation of any form of waste. The companies serve residential, municipal, commercial and industrial customers in the United States and internationally. Some industry participants provide non-hazardous solid waste collection, transfer, recycling, disposal, and energy services for small-container, large-container, municipal and residential, and energy services customers in the United States and Puerto Rico, while others provide waste management environmental services to residential, commercial, industrial, and municipal customers in North America. Some industry players also operate as environmental infrastructure and solutions companies, providing water handling and recycling solutions.

What's Shaping the Future of the Waste Removal Services Industry?

A Healthy Demand Environment: The industry is mature, with growth coming from volume and price increases. Income has grown steadily over the past few years, enabling most industry players to pursue acquisitions and other investments.

The Uptick in Economic Activities Bodes Well: With the reopening of the economy and the resumption of business activities, waste generation is bound to increase, especially in industrial and commercial sectors. Despite the decline in COVID-19 cases, proper disposal of medical waste will always remain an utmost priority to curb the spread of infection. Increase in population, industrialization and urbanization should remain the key drivers of the industry as it leads to a significant rise in garbage and recycling. Also, use of advanced collection and recycling solutions are expected to pick up pace. This should enhance business opportunities for waste management companies.

Government initiatives as well as stringent rules and regulations to advance sustainable waste management mechanisms and put a check on illegal dumping are also expected to boost the industry.

High Operating Costs a Woe: Given that waste management is both a time-consuming and complex process, it requires higher capital and operating costs to manage waste collection vehicles, bins, and processing equipment along with a huge number of workers. Such high operational expenses are likely to keep the bottom line of the companies in this industrial cohort under pressure.

Zacks Industry Rank Indicates Encouraging Prospects

The Zacks Waste Removal Services industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #59. This rank places it in the top 23% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates strong near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The buy-side analysts covering the companies in this industry have been increasing their estimates. Over the past year, the industry’s consensus earnings estimate for the current year has increased 4.3%.

Before we present a few stocks that investors can buy, given their growth prospects, let’s take a look at the industry’s recent stock market performance and current valuation.

Industry's Performance

The Zacks Waste Removal Services industry has outperformed the broader Zacks Business Services sector but underperformed the Zacks S&P 500 composite over the past year.

The industry has declined 21.4% over this period compared with a 45.3% decline of the broader sector and a 14.4% decline of the Zacks S&P 500 composite.

One-Year Price Performance

Industry's Current Valuation

On the basis of EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization), which is commonly used for valuing waste removal services stocks because of their high debt levels, the industry is currently trading at 14.10X compared with the S&P 500’s 12.09X and the sector’s 21.8X.

Over the past five years, the industry has traded as high as 14.51X, as low as 8.46X and at the median of 11.63X, as the charts below show.

EV/EBITDA Ratio

3 Waste Management Stocks to Pick Now

Clean Harbors: This Zacks Rank #1 (Strong Buy) Massachusetts-based company provides environmental and industrial services in North America.You can see the complete list of today’s Zacks #1 Rank stocks here.

Clean Harbors focuses on improving its efficiency and lowering operating costs through enhanced technology, process efficiencies and stringent cost management. It continues to make capital investments to enhance its service quality and comply with government and local regulations. Buyouts help the company expand its business across multiple lines of services. Consistency in rewarding shareholders through share buybacks boosts investor confidence and positively impacts earnings per share. The Zacks Consensus Estimate for Clean Harbors’ 2022 EPS has moved up 52.7% in the past 90 days. CLH stock has gained 15.9% in the past year.

Price & Consensus: CLH

Waste Management: This Zacks Rank #2 (Buy) Texas-based company provides waste management environmental services to residential, commercial, industrial, and municipal customers in North America. Waste Management’s top line has been benefiting from acquisition revenues and growth from yield.The company continues to execute core operating initiatives, targeting focused differentiation and continuous improvement, and instill price and cost discipline to achieve better margins. WM’s revenue growth for 2022 is expected to be approximately 10%, up 400 basis points from the midpoint of prior guidance. The Zacks Consensus Estimate for Waste Management’s 2022 EPS has improved 2.7% in the past 90 days. WM stock has gained 9.9% in the past year.

Price & Consensus: WM

Sims Limited: This Zacks Rank #2 Australia-based company engages in buying, processing, and selling ferrous and non-ferrous recycled metals in Australia, Bangladesh, China, Turkey, the United States, and internationally.

Sims looks strong on the back of solid intake and sales volume growth, margin expansion, material improvement in market prices and cost reduction.

The Zacks Consensus Estimate for Sims’ 2022 EPS has improved 15.2% in the past 90 days. SMSMY stock has declined 9.2% in the past year.

Price & Consensus: SMSMY


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Waste Management, Inc. (WM) : Free Stock Analysis Report
 
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