A detailed quantitative analysis by Waste Management, Inc. (WM) is linked here. Below are some highlights from the analysis linked above:
Company description: Waste Management Inc. is the largest US company for waste transportation / disposal.
Fair value: When calculating the fair value, I take into account the differential fair value of the present value MMA along with these four fair value calculations. A detailed description can be found on page 2 of the linked PDF:
1. Avg. High yield price
2. 20-year DCF award
3. Avg. P / E price
4. Graham Number
WM trades at a premium to all four of the above ratings. Since the material book value of WM is not meaningful, a Graham number cannot be calculated. Including the NPV MMA differential, the stock is trading at a premium of 118.9% over the calculated fair value of $ 54.21. WM did not deserve any stars in this area.
Dividend analytical data: There are three possible stars and three key metrics in this section. A detailed description can be found on page 2 of the linked PDF:
1. Free cash flow payout
2. Debt to total capital
3. Key Metrics
4. Dividend Growth Rate
5th years Div. growth
6. Rolling 4 year old Div. > 15%
WM has earned a star for 1.) above in this section. A star was earned because the free cash flow payout ratio was less than 60% and there were no negative free cash flows in the last 10 years. The company has paid a cash dividend to shareholders every year since 1998 and has increased its dividend payments for 18 consecutive years.
Dividend Income vs. MMA: Why would you take the equity risk and invest in a dividend stock when you could get a better return on a much less risky money market account (MMA) or a government bond? This section compares that stock’s earning power to a High performance MMA. There are two points covered in this section. A detailed description can be found on page 2 of the linked PDF:
1. NPV MMA Diff.
2. years to> MMA
The NPV MMA Diff. of the $ 132 is below the $ 1,700 target I’m looking for for a stock that has been dividend increased as long as WM has done so. If WM increases its dividend to 5.5% per year, it will take 8 years to reach an MMA with an estimated 20-year average rate of 2.74%.
Peers: The company’s peer group includes: Casella Waste Systems Inc. (CWST) with a yield of 0.0%, Republic Services, Inc. (RSG) with a yield of 1.8% and Waste Connections Inc. (WCN) with a yield of 0.8%.
Conclusion: WM did not deserve any stars in the Fair Value category, earned one star in the Dividend Analytical Data category and did not deserve any stars for one star in the Dividend Income vs. MMA category. This means that WM is quantitatively called 1-star Very weak Camp.
With my D4L-PreScreen.xls Model, I decided that the stock price would have to fall to $ 53.17 before WM’s NPV MMA differential rose to the minimum of $ 1,700 that I’m looking for on a stock with 18 years of consecutive dividend increases. At that price, the stock would return 4.3%.
Resetting the D4L-PreScreen.xls Model and solution for the dividend growth rate required to achieve the targeted MMA differential of $ 1,700, the calculated rate is 13.0%. This dividend growth rate is higher than the 5.5% used in this analysis, so there is no margin of safety. WM has one Risk assessment of 2.00, which it classifies as a medium risk stock.
WM is very extensive compared to its competitors. The core business generates annuity-like cash flows by providing services for private, commercial and industrial customers. The company will likely continue to make niche acquisitions while deleveraging, buying back shares, and increasing dividends.
At 65% (versus 64%), WM’s debt versus total capital is above my maximum of 45%, and the free cash flow payout at 55% (versus 43%) is below my maximum. The stock is currently trading well above my calculated fair value price of $ 54.21. Right now, WM isn’t a stock I’m considering for any of my income portfolios.
Disclaimer: The material presented here is for informational purposes only. The above quantitative stock analysis, including the star rating, is mechanically calculated and based on historical information. The analysis assumes that the share will develop in the future as it has in the past. In general, this is never true. Before buying or selling stocks they should do your own research and arrive at your own conclusion. Please see my disclaimer for more information.
Full disclosure: At the time of this writing, I did not hold a position in WM (0.0% of my dividend growth portfolio). Here.
On the subject of matching items:
– Dividend stock analysis from Digital Realty Trust, Inc. (DLR)
– Analysis of General Dynamics (GD) dividend stocks
– Analysis of Emerson Electric Co. (EMR) dividend stocks
– More stock analysis
Tags: WM, CWST, RSG, WCN,