Waste Management - Is It Time To Bring In Or Take Out?

| About: Waste Management, (WM)

As we approach year end, especially this year with such significant gains in the market and individual portfolios, it often is a consideration or decision time on holding, selling to capture gains, or buying more. In addition, year-end may also be a good time to take a look at rebalancing decisions.

Waste Management (NYSE:WM) is one of those holdings for me that has come to decision time. Let's take a quick look at some of the company fundamentals, industry trends, and the peer group to help us answer the question.

On November 19, 2012 WM was added to my portfolio at $31.65 and with dividends reinvested currently stands with a 39.15% gain. The current dividend yield is 3.31% which fits well with the portfolio goals for income.

Selling to capture gains would of course have the tax man to pay and not having any significant losses to offset is one thing to consider. The long term prospects for WM for additional gains should also be a part of the equation.

There is a lot to like right now with WM in the current corporate business plan. Let's take a look.

Waste Management is the largest waste disposal company in North America providing collection, transfer, recycling and resource recovery, as well as disposal services.

It also owns U.S. waste-to-energy facilities. More on this energy angle later.

WM has a philosophy to keep the customer first with outstanding service. The current customer retention ratio is within the 90th percentile. According to company reports each 1% reduction in the churn ratio for customer acquisition adds $25 million to EBIT.

WM also has an eye toward energy usage with a long term goal for an energy portfolio 80% contracted and 20% floating.

According to company news reports in October 2007, WM announced an environmental initiative under which it planned to invest in waste-based energy production, recycling and new waste technologies, including up to $500 million a year for 10 years to increase the fuel efficiency of its fleet, which was recently 12.5% CNG (compressed natural gas).

WM is targeting 90% to 95% CNG for its truck fleet within a few years. We view this as a positive long-term environmental strategy as more methane in landfills is converted into energy.

In March 2010, WM acquired a 40% interest in Shanghai Environment Group (SEG), a leading waste-to-energy company in China, for $142 million. In April 2010, it bought a waste-to-energy plant in Virginia for $150 million.

What about WM standing with its peer group including; Republic Services (NYSE:RSG), Waste Connections (NYSE:WCN), Stericycle (NASDAQ:SRCL), and Rollins (NYSE:ROL). Here are some of the financial ratios and earnings information to consider.

Description

Company Name

Republic Services Inc

Waste Management Inc

Waste Connections Inc

Stericycle Inc

Rollins Inc

Last Price

$34.32

$44.16

$41.31

$116.57

$26.99

52 Week Price Range

$26.45 - $35.61

$30.82 - $44.60

$30.40 - $46.49

$89.77 - $121.61

$21.35 - $28.76

Average Volume

1,683,605

2,444,025

619,675

254,654

153,944

Dividend Yield

3.03%

3.31%

1.11%

--

1.33%

Net Profit Margin

7.1

6.0

9.6

14.0

8.8

Return on Assets

2.9

3.5

3.1

7.6

16.1

Sales per Employee

270,610

313,770

251,530

144,440

121,380

Earnings

Price/ Earnings (TTM)

26.0

22.3

28.1

33.6

33.3

Price/ Earnings (NFY)

16.9

18.4

21.2

28.0

29.0

Price/ Sales

1.5

1.5

3.1

5.2

3.1

Price/ Earnings/ Growth

4.8

3.3

2.1

2.1

3.3

Click to enlarge

So, do numbers prove the worth?

As a shareholder you would have to appreciate the most recent announced plans for share repurchases and quarterly dividend increases.

WM actually shows very well against the peers in dividend yield, return on assets, PE ratio, and Price/Sales. This would support our idea that WM is fairly valued in the market with potential for further growth.

Therefore, based on the information, news, and financial ratio comparisons, we have come to decision time.

Further Considerations

As I use more of a value approach WM earns checks. Finally, how does WM fit within my current portfolio? The yield is of particular interest in the current income strategy and is at or near the goal.

Conclusion

As a result then WM remains in my portfolio and after further study may also deserve to add to the current position. However, as the year-end approaches and rebalancing decisions are made with an eye toward income, we will see.

Disclaimer: These are only personal opinions and all readers should do their own research. Readers are accountable for investment decisions and trades.

Disclosure: Securities prices and yields quoted are current as of November 8, 2013. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. I do not know the circumstances, risk tolerance or investment objectives of the readers. There is no guarantee that any investment mentioned in this article will be profitable or appropriate for readers. 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.