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Waste Management: Your One-Stop Shop For Waste And ESG Equity Needs

Mar. 05, 2020 9:17 PM ETWaste Management, Inc. (WM)ADSW, RSG, WCN, WCN:CA23 Comments
Russell Katz profile picture
Russell Katz


  • Waste Management's revenue is comprised of five main business segments: collections, landfill, transfer, recycling, and other.
  • The company has experienced strong revenue, EBITDA, and operating cash flow growth over the last ten years due to smart investments, acquisitions, and innovations on the part of management.
  • It has a bright future and demands a premium compared to its peers; however, at $112.71 a share, the premium currently demanded is too high.

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Overview of WM Business

Waste Management (NYSE:WM) was founded in 1968, and over the last 51 years has grown into one of the largest environmental and waste services companies in North America. Waste Management operates in North America across 17 different customer zones (please see image below) - 15 in the United States and 2 in Canada.

Waste Management North America Market Areas

As of Q4 2019, Waste Management's revenue is split into five main categories:

Waste Management Q4 2019 Revenue Mix

Source: Author

1. Collection: Approximately 20,000,000 customers

At approximately 53% of revenues, collection stands apart as Waste Management's largest revenue segment. The collection segment of Waste Management's revenue refers to the transportation of solid waste and recyclables to either a landfill, transfer station or material processing facility. With a diverse pool of customers across multiple industries, collection revenue has provided a compound annual growth rate (CAGR) of 2.19%.

Annual Report (Calendar Year) Total Collection Revenue
2010 $ 8,247,000,000
2011 $ 8,406,000,000
2012 $ 8,405,000,000
2013 $ 8,513,000,000
2014 $ 8,507,000,000
2015 $ 8,439,000,000
2016 $ 8,802,000,000
2017 $ 9,264,000,000

$ 9,724,000,000


$ 10,240,000,000

Collection revenue is comprised of four different streams:

  • Commercial: 41% of 2019 total collection revenue

Mid-sized businesses which typically sign-up for 3-5 year service agreements. Commercial, as of Q3 2019, has approximately 1,000,000 customers.

  • Industrial: 28% of 2019 total collection revenue

A combination of manufacturing waste (recurring) and construction waste (temporary) contracts. Industrial collection had approximately 200,000 customers as of Q3 2019.

  • Residential: 26% of 2019 total collection revenue

Residential consists of individual waste collection and larger municipal contracts. These contracts can run between 3-10

This article was written by

Russell Katz profile picture
The host of the first Seeking Alpha podcast Chasing the Elephant and equity analyst by profession. All opinions expressed here are my own and sperate from any company where I am employed. While I express my opinion in my reports, only you can determine if a specific investment is right for your portfolio. You should always do your own research before buying or selling any investment.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in WM over the next 72 hours. 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.

While I express my opinion in this article, only you can determine if a specific strategy is right for your portfolio. You should always do your own research before buying, selling, or shorting any stock. Any charts, graphs, or tables not specifically credited to another individual, company, or institution were created by the author using his own research.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (23)

"When the price comes down to around $100 a share, I would then change my rating to a buy."

I think you mean that IF the price comes down to $100, you will then change your buy price to $90 and still say it is overvalued :)

As for me, the way I look at it, one of the most recession resistant stocks in the market recently went down 13% along with the rest of the market, which is not nearly as resistant... it is worth serious consideration for investment.
Russell Katz profile picture
@Cashflow Curator I am not sure how, if you read my entire article (thoroughly), you could be of the opinion that I am just plucking numbers out of thin air. Your assertion that I would lower my purchase recommendation makes absolutely no sense, on any level. I recommend you review my article in its entirety before you make comments that clearly show a lack of attention to the analysis above. For if you had read my article, in its entirety, you would have seen that I also said:

"Waste Management is towards the upper range of where I feel is reasonable, due in large part to the recent selloff, and therefore, I would not recommend selling at this price either."

If you disagree with my valuation, as do some commentators, then share your reasoning and where you find fault with my analysis. I am always happy to discuss the details further. However, if you instead would rather pick a specific and out of context sentence of my report and cast baseless assertions, I would respectfully ask that you not waste my time or the time of Seeking Alpha's readers. I do, however, thank you for the page view.
Given the hubris and false precision presented in your lengthy analysis and response, I have no doubt that you believe in your heart of hearts that you know fair value of WM down to the penny.

I've already provided my rationale for why I think it is worth consideration as an investment, in two sentences rather than pages. I leave it to others to do their own independent due diligence and determine their own estimate of fair value, even if they want to be silly and calculate it down to 3 significant digits and then say it is overvalued when it is within 17% of that fair value estimate. If you think that is wasting your time, then please feel free to skip over those 2 sentences.
Tommyboy918 profile picture
@87.84 today-p/e 23.54-23% debt-Over valued IMHO. Just sayin.
They are an unstoppable garbage company, green most days in my portfolio just like their garbage trucks. I bought them when I saw that they could strew garbage all over our neighborhood carelessly, miss half the cans, and the town can't fire them because there they have a local monopoly. That's unstoppable pricing power.

Now instead of shaking my fist when they drive by, I just watch my shares go up and to the right.
Russell Katz profile picture
Thank you for taking the time to read my article and comment. What an excellent way of looking at an issue in your area. I will attempt to follow your lead when issues arise in my community and see them as a potential investment thesis.
TopperBrad profile picture
I'll repeat what I've said before. Buy both $WM and $RSG at the right price. Together they control ~50% of the waste disposal market in the US. It's a highly fragmented industry and nobody else comes close to the size and scale of $WM and $RSG.
Russell Katz profile picture
@topper1296 thank you for taking the time to read my article and comment. The industry definitely has a lot of room for consolidation, one of the reasons I think the DoJ will approve the merger. However, the fragmentation does benefit Waste Management due to how many smaller operators use their landfill, transfer stations, and material recovery facilities for a fee.
Chance is you won’t see WM anywhere near $100. Bought more shares at $118 and even more if it does drop to $100 if your case comes true.

The reason is this is a famous “buy and hold forever stock, recession proof stock, and a stock with wide moat”. Coronavirus concern is unfound for WM because the loss from construction waste and such will be replaced by a surge medical waste (due to the virus).
Russell Katz profile picture
@terrie000 thank you for taking the time to read my article and comment. To clarify, I did not say that I think the price is going to drop to $100 in the next 12-months. I did not give a 12-month price target. I think the market is too uncertain currently to accurately predict which way the price of Waste Management, specifically, is going in the short-term. So I defaulted to a valuation standpoint based on fundamentals, macro, and growth analysis I outlined in the article above. I agree that Waste Management is, almost, as recession "proof" as they come; however, as I mentioned above, industrial collections made up 28% of their 2019 total collection revenue. To quote my above definition, industrial waste collection is: "A combination of manufacturing waste (recurring) and construction waste (temporary) contracts. Industrial collection had approximately 200,000 customers as of Q3 2019." This is far from recession-proof and is a significant aspect of Waste Management's annual revenue, combined with recycling they do have exposure. I do plan on writing an article that dissects the different revenue streams of several companies and their vulnerability to a recession. If you follow my account, you should be notified of this article end of March or early April.
johnmarg profile picture
I have followed WCN for some time and recently bought a covered March 90 call just in case of a market crash. This stock has performed excellent for a long time. I cannot find a better one to own in good and bad times. Others like GOOG , AMZN, etc will tank with the market. WCN losses a lot less and performs excellent during good times. Appreciate the detailed article
Russell Katz profile picture
@johnmarg thank you for taking the time to read my article and comment. I am glad that my article was informative to somebody who is a Waste Connections holder, they are on my list of companies to write about.
If you saw them purchase Mississippi state government officials in order to try to ship waste to Pascagoula Ms, "treat" it, then flush it through public sewers into the Gulf of Mexico, then you wouldn't want the stock. Public hearings were abusive to the public as it was presented as a done deal! Fortunately, the Sierra Club filed suit and the plan was abandoned.
Russell Katz profile picture
Hello @jasonjones, thank you for taking the time to comment on my article. I did a bit of research to try and find what you are talking about but was unable to find anything. To be clear I only spent twenty minutes. However, I would ask, as I do, that when discussing or asserting facts about specific events you provide context in the form of sources so readers can learn more easily. With all due respect, your not very clear about what specifically you are talking about. If you could please provide a source for this incident I would appreciate it.
I have no reason to fib. It was a disgusting episode of corporate abuse in a poor southern state. I am not surprised you couldn't find anything about it since the plan didn't fly. I was lambasted by the state attorney along with several others for speaking at a public hearing even though I was not abusive or degrading. Sad situation.
P.s. following
Thank you for the thoroughness im this article. I am quite happy with the 20% plus share price gains of WM over the past year, long WM.
Russell Katz profile picture
@User 39720196 thank you for taking the time to read and comment on my article. I appreciate the praise for the thoroughness, Waste Management has a lot of layers and is not as straight forward a company as it seems at first glance. I am glad to hear my article was clear in explaining the intricacies. You definitely made the right decision buying Waste Management in the mid-$90s (going off your 20% comment) and I agree with your sentiment that it is a long-hold. As I mentioned in my article Waste Management is at the high end of what I would consider the acceptable valuation range and, therefore, for those fortunate enough to have bought it before its current run up, I don't believe selling would be a wise move. Hence, my hold rating. Thank you again for taking the time to comment and for the follow.
Robert.from.Ct profile picture
very good article-------great work
Russell Katz profile picture
@Robert.from.Ct Thank you for taking the time to read and comment on my article. I appreciate the feedback and appreciation. If you give me a follow I promise there are many more articles that go into the depths of this coming soon.
05 Mar. 2020
the price isnt sniffing $100 a share unless there is a massive market flush. best in breed. buy on any pullback and hold. this is the type of stock Buffett became famous acquiring
Russell Katz profile picture
@egm71 Thank you for taking the time to read and comment on my article. While I agree with the premise of what you are saying, I think a significant reason behind the current price has to do with recession concerns, the influx of cheap money, and the frantic search for yield among investors. I placed my rating at a hold rather than a sell because I do agree that the chances of Waste Management going down to $100 anytime soon are low (with the exception of a broader market rout). I do not recommend shorting the stock, and if you have a position, I would not sell (hence the hold rating). I do believe, however, that a larger premium than many of my fellow SA contributors are willing to give Waste Management is warranted. But to come back to your comments on Mr. Buffet, yes, Waste Management is a perfect example of the type of company he is famous for acquiring. When I discussed their "moat" in the beginning, I put it in quotes as I was referencing Mr. Buffet's famous "moat" analysis. However, he is also renowned for waiting till the right price to pull the trigger, and at today's price of $117.71, the price is most definitely not right from a long-term, fundamental, or dividend investing point of view. I hope I have adequately responded to the points you have brought up. Thank you again for taking the time to read and comment on my article.
06 Mar. 2020
thank you for replying. good article and I will def be backing up the truck (pun intended) if this market flush gets us to 100.
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