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RSG or WM: Which Waste Removal Stock Should You Retain Now?

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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, in order 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.

The Zacks Waste Removal Services industry currently carries a Zacks Industry Rank #78, which places it in the top 31% of more than 250 Zacks industries, and indicates solid near-term growth prospects.

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 $35.94 billion, that of Waste Management is $60.41 billion.

As both 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.

Price Performance

Waste Management clearly scores over Republic Services in terms of price performance. So far this year, shares of Waste Management have gained 20.9%, outperforming the 17% rally of Republic Services and 16.4% growth of the industry.

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Earnings Surprise History

Earnings surprise history helps investors get an idea of the company’s performance in 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 22.2% compared with Waste Management’s 5.9%.

Earnings Expectations

Earnings growth and stock price gains often serve as indications of a company’s prospects.

Waste Management’s current-quarter earnings are projected to grow 34.1% while that of Republic Services are expected to grow 14.8%.

Looking at the full-year 2021 picture, Waste Management’s earnings are projected to grow 19.4% while that of Republic Services are expected to increase 7.3%. For 2022, Waste Management’s earnings are expected to register 11.5% growth, while that of Republic Services are expected to grow 9.9%.

Thus, Waste Management has an edge over Republic Services in terms of quarterly and yearly projected earnings growth.

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 90 days, the Zacks Consensus Estimate for Waste Management’s current-quarter earnings has improved 3.5% while the same for Republic Services has remained flat.

For 2021, Waste Management’s earnings estimates have improved 3.7% compared with an increase of 2.7% for Republic Services. For 2022, Waste Management’s earnings estimates have surged 4.7% compared with an increase of 3.2% for Republic Services.

Based on quarterly and yearly earnings estimate revisions in the past 60 days, Waste Management is better placed than Republic Services.

Valuation

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 16 and 14.3, respectively, compared with the industry’s figure of 13. Although both companies compare unfavorably with the industry, Republic Services has an edge over Waste Management with a lower EV/EBITDA ratio.

Bottom Line

Our comparative analysis shows that Waste Management scores over Republic Services in terms of price performance, earnings estimate revisions, and quarterly and yearly earnings growth projection. 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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