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Number One player in the trash collection/disposal business, Waste Management (WMI), reports earnings later today.

Waste is a mixed story, for the most part. Volume in the solid waste business remains soft, due mostly to higher fuel prices and vehicle costs. Hurricanes Katrina and Rita, furthermore, failed to generate the earnings bursts analysts were crossing their fingers for.

On the other hand, new waste degradation, composting, and disposal methods have been keeping WMI's operating/EBITDA margins at a decent level.

WMI is the leader in the environmental services industry (28% market share with 30K trucks catering to 27M customers) -- it trades at 17 X earnings, delivers 16% ROE, and spits and a 2.6% yield.

Waste, which bangs out $13B a year in revenues, is levered at 2.7X, not abysmal when compared to its peer group.

Investors are not paying enough attention to Waste's strong free cash flow, buyback programs, and cost-reducing efforts. There are also some upcoming corporate/organizational changes (part if its restructuring program) that have yet to be fully reflected in the price of the stock.

In other words, investors are treating WMI like trash.

We think Waste should trade at 20 or 21X our F2006 EPS forecast of $1.63 a share -- we have a $35 price target and a hold rating on shares of Waste.

WMI 1-yr Chart

Source: Investors Treating Waste Management Inc. Like Trash (WMI)