Waste Management, Inc. (NYSE:WM) is a provider of waste management services in North America which collects, transfers, recycles and disposes of waste. On July 30, 2013, the company reported second-quarter earnings of $0.54 per share, which missed the consensus of analysts' estimates by $0.01. Since last writing about the stock back on May 28, 2013, the stock is down 5.97% excluding dividends (down 4.17% including dividends), and is losing to the S&P 500, which has gained 0.33% in the same time frame. With all this in mind I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth buying some more of the company right now for the industrial goods sector of my dividend portfolio.
Waste Management currently trades at a trailing 12-month P/E ratio of 21.9, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 16.7 is currently fairly priced as well for the future in terms of the right here, right now. Next year's estimated earnings are $2.39 per share. The 1-year PEG ratio (2.06), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 10.62%.
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. Waste Management boasts a dividend of 3.66% with a payout ratio of 79.1% of trailing 12-month earnings (or 212% based on free cash flow) while sporting return on assets, equity and investment values of 3.7%, 13.3% and 8.7%, respectively, which are all respectable values, but nothing to write home about. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 3.66% yield of this company is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past 10 years with a 5-year dividend growth rate of 8.1% but I believe future increases may be at a low rate with its already high payout ratio.
Looking first at the relative strength index chart [RSI] at the top, I see the stock muddling around in oversold territory with a value of 33.24 with upward trajectory, which is a bullish pattern. To confirm that, I will look at the moving average convergence-divergence [MACD] chart next and see that the black line is below the red line with the divergence bars decreasing in height to the upside, indicating the stock is about to have upward momentum. As for the stock price itself ($39.85), I'm looking at $41.07 to act as resistance and $38.95 to act as support for a risk/reward ratio, which plays out to be -2.31% to 3.06%.
- The company declared a quarterly dividend of $0.365 per share with an ex-date of September 4, 2013, and payable on September 20, 2013.
- On July 30, 2013, the company reported second-quarter earnings of $0.54, which missed estimates by $0.01 on revenue of $3.53 billion which also missed estimates by $0.02 billion.
- Net income was up 17.3% to $244 million as revenues rose 1.9% to $3.53 billion.
- The company expects recycling operations to hurt full-year results by $0.08 per share against results from last year.
- The company still expects full-year adjusted earnings per share of $2.15 to $2.20 versus a consensus of $2.18.
Waste Management is fairly valued based on future earnings and expensively priced on future growth prospects (one-year outlook). Financially, the dividend payout ratio is high based on trailing 12-month earnings and high on free cash flow but I don't doubt management will be able to continue to increase the dividend going forward but at a very low rate; based on future earnings the dividend payout ratio goes down to around 61% (if the dividend is kept steady). The technical situation of how the stock is currently trading is telling me we might be seeing some more upward pressure. The dividend is what's to like about the company and personally I am going to layer into a position here and make a very small purchase.
Disclosure: I am long WM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!