The coronavirus outbreak has necessitated the proper disposal of waste. In fact, waste management companies are at an advantage in situations such as the ongoing pandemic as healthcare officials have to dispose of used masks, gloves, suits, syringes and other medical equipment properly to curb the spread of infection. 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 aid the industry.
Growing adoption of recycling techniques, and development of technologies and advanced waste collection solutions are key trends within the industry. Recycling remains a major growth area, with most industry players undertaking municipal solid waste- and non-hazardous industrial waste-recycling measures. Rising environmental concerns, rapid industrialization, increase in population and an expected increase in non-hazardous waste as a result of rapid economic growth should enhance business opportunities for waste management companies.
Given this encouraging backdrop, it is not a bad idea to undertake a comparative analysis of two waste removal services industry stocks — Republic Services Inc. RSG and Waste Management, Inc. WM. Both stocks are part of the broader Zacks Business Services sector (one of the 16 Zacks sectors). While market capitalization of Republic Services is $30.82 billion, that of Waste Management is $52.20 billion.
As both the stocks carry a Zacks Rank #3 (Hold), we are using certain other parameters to give investors a better insight. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Waste Management clearly scores over Republic Services in terms of price performance. Over the past year, shares of Waste Management have gained 36.5%, outperforming the 35% surge of Republic Services and 20.1% surge of the industry.
Earnings Surprise History
Earnings surprise history helps investors get an idea of the company’s performance in the previous quarters.
Both Republic Services and Waste Management surpassed the Zacks Consensus Estimate in each of the previous four quarters. However, Republic Services delivered a higher average earnings surprise of 20.8% compared with Waste Management’s 4.4%.
Earnings Estimate Revisions
The direction of estimate revisions serves as an important pointer when it comes to the price of a stock.
Over the past 60 days, the Zacks Consensus Estimate for Waste Management’s 2021 earnings estimates has improved 1.8% compared with an increase of 0.5% for Republic Services. For 2022, Waste Management’s earnings estimates have improved 1.8% compared with an increase of 0.2% for Republic Services.
Based on yearly earnings’ estimate revisions in the past 60 days, Waste Management is better placed than Republic Services.
EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization) ratio is the commonly used metric for valuing waste removal services stocks because of their high debt levels.
We observe that Waste Management and Republic Services have EV/EBITDA ratios of 14.8 and 13, respectively, compared with the industry’s figure of 11.6. Although both companies compare unfavorably with the industry, Republic Services has an edge with a lower EV/EBITDA ratio.
Net profit margin helps investors evaluate a company’s business model in terms of pricing policy, cost structure and operating efficiency, and shows how good it is at converting revenues into profits. Hence, a strong net profit margin is preferred by all classes of investors.
With a TTM net margin of 9.8%, Waste Management not only compares favorably with the industry’s figure of 7.2% but also has a lead over Republic Services’ 9.5% TTM net margin.
Our comparative analysis shows that Waste Management scores over Republic Services in terms of price performance, earnings estimate revisions and net margin. However, Republic Services enjoys an advantage in terms of earnings surprise history.
A faster share price rally over the past year has led to a rich valuation for Waste Management compared with Republic Services.
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Waste Management, Inc. (WM) : Free Stock Analysis Report
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