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The last time I wrote about Waste Management, Inc. (NYSE:WM) I bought a small batch in it stating that I thought "we might be seeing some more upward pressure" on the stock. The stock shot up since that time, never looking back. Since the last article, it actually is up 15.68% versus the 9.03% gain the S&P500 (NYSEARCA:SPY) posted. Waste Management is a provider of waste management services in North America which collects, transfers, recycles and disposes of waste. On October 29, 2013, the company reported third quarter earnings of $0.65 per share, which beat the consensus of analysts' estimates by $0.03. In the past year, the company's stock is up 42.46% excluding dividends (up 45.25% including dividends), and is beating the S&P 500, which has gained 28.07% 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 more shares of the company right now for the industrial goods sector of my dividend portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 23.28, 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 19.11 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (2.34), 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 9.94%. Below is a comparison table of the fundamentals metrics for the company from the time I wrote the last article to what it is right now.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

06Sep13

39.85

21.9

16.7

2.39

35

2.06

10.62

24Nov13

46.1

23.28

19.11

2.41

36

2.34

9.94

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 3.17% with a payout ratio of 74% of trailing 12-month earnings while sporting return on assets, equity and investment values of 4%, 14.3% and 8.7%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 3.17% 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 ten years at a 5-year dividend growth rate of 8.1%. Below is a comparison table of the financial metrics for the company from the time of the last article to what it is right now.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

06Sep13

3.66

79.1

3.7

13.3

8.7

24Nov13

3.17

74

4

14.3

8.7

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock hanging out in overbought territory with a value of 75.22. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars flattening out in height, indicating the bullish trend may be getting tired. As for the stock price itself ($46.10), I'm looking at $47.13 to act as resistance and $45.33 to act as support for a risk/reward ratio, which plays out to be -1.67% to 2.23%.

Recent News

  1. The company recently declared a quarterly dividend of $0.365 per share with an ex-date of 02Dec13 and pay date of 20Dec13.
  2. The company reported third quarter earnings on the morning of 29Oct13 of $0.65 per share on revenue of $3.62 billion versus expectations of $0.62 per share and revenue of $3.6 billion.

Conclusion

Waste Management definitely has a pulse on the recovery in the economy. We are all being told of late that the economy is indeed picking up and when the economy is picking up, we generate more trash. When we generate more trash, Waste Management is there to pick it up for us. In a recent interview on CNBC, CEO David Steiner said that he's seeing a pickup in housing starts as those trash pickup volumes are increasing, but what he has not seen is a pickup in small business commercial volumes. He then goes on to say that we should be seeing small business commercial volumes pick up afterwards as it is a sequential pattern. Keeping that in mind, I believe the stock is fairly valued based on future earnings but expensive on growth potential. Financially the company is performing well by increasing its returns on assets and equity; but the dividend yield has come down a bit albeit at the expense of a higher share price which I will take any day of the week. On a technical basis, I believe the stock is overbought and is due for a pullback in spite of the excellent earnings announcement. What troubles me for now is that the stock is fairly valued, has low growth potential, and the overbought technicals; it's for these reasons I will not be adding to my position now because I think I can get it at a lower price.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am long WM, SPY. 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.

Source: Waste Management: Garbage Gains And A High Yield