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Here's Why You Should Hold on to Waste Management (WM) Stock

Zacks Equity Research
·3 mins read

Waste Management, Inc. WM has an impressive Growth Score of B. This style score condenses all the essential metrics from the company’s financial statements to get a true sense of quality and sustainability of its growth.

The company has an expected long-term earnings per share (three to five years) growth rate of 6.3%.

Shares of Waste Management have gained 8.5% in the past three months, outperforming 7% growth of the industry it belongs to.

Aiding Factors

Waste Management continues to execute core operating initiatives targeting focused differentiation and continuous improvement, and instil price and cost discipline to achieve better margins. Differentiation through capitalization of extensive assets ensures long-term profitable growth and competitive advantages.

Many companies across diverse sectors have suspended dividend payouts amid the coronavirus crisis. Nevertheless, Waste Management is one of those few players that are staying afloat amid tough economic conditions and maintaining dividend payouts. On Aug 18, the company announced a quarterly cash dividend of 54 cents payable on Sep 18 to shareholders on record as of Sep 4.

Waste Connections has a track record of consistent dividend payouts. It had paid $876 million, $802 million and $750 million in dividends during 2019, 2018 and 2017, respectively. Waste Management plans to return significant cash to shareholders through healthy dividends and share repurchases in the future as well.

Risks Associated

Waste Management’s total debt-to-capital ratio of 0.65 at the end of second-quarter 2020 was higher than the industry's 0.55. The increasing debt-to-capitalization ratio indicates that the proportion of debt to finance the company’s assets is on the rise. Higher debt, as a percentage of total capital, indicates that a company has higher risk of insolvency.

Further, cash and cash equivalent balance of $2.7 billion at the end of the second quarter was well below the long-term debt level of $9.6 billion, underscoring that the company doesn’t have enough cash to meet this debt burden. Also, the cash level cannot meet the current debt of $3.2 billion.

Zacks Rank and Stocks to Consider

Waste Management currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader Zacks Business Services sector are BG Staffing, Inc. BGSF, CoreLogic, Inc. CLGX and Sykes Enterprises, Incorporated SYKE. BG Staffing, CoreLogic and Sykes Enterprises sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings (three to five years) growth rate for BG Staffing, CoreLogic and Sykes Enterprise is estimated at 20%, 12% and 8%, respectively.

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Waste Management, Inc. (WM) : Free Stock Analysis Report
 
Sykes Enterprises, Incorporated (SYKE) : Free Stock Analysis Report
 
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Zacks Investment Research