Waste Management Inc Valuation – February 2019 $WM
Company Profile (excerpt from Reuters): Waste Management, Inc. (WM), incorporated on April 28, 1995, is a holding company. The Company, through its subsidiaries, is a provider of waste management environmental services. The Company’s segments include Solid Waste and Other. The Company’s Solid Waste segment includes its solid waste business. The Other segment includes its Strategic Business Solutions (WMSBS) organization; its landfill gas-to-energy operations and third-party subcontract and administration services managed by its Energy and Environmental Services and WM Renewable Energy organizations; its recycling brokerage services, and its service offerings and solutions, such as portable self-storage and long distance moving services, fluorescent lamp recycling and interests it holds in oil and gas producing properties.
Downloadable PDF version of this valuation:
ModernGraham Valuation of WM – February 2019
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $42,195,563,110 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 0.87 | Fail | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Pass | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Pass | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | 87.89% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 28.00 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 6.83 | Fail | |
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 0.87 | Fail | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | -24.23 | Fail | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $3.54 |
| MG Growth Estimate | 15.00% |
| MG Value | $136.11 |
| Opinion | Undervalued |
| MG Grade | C- |
| MG Value based on 3% Growth | $51.26 |
| MG Value based on 0% Growth | $30.05 |
| Market Implied Growth Rate | 9.75% |
| Current Price | $98.99 |
| % of Intrinsic Value | 72.73% |
Waste Management, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.74 in 2014 to an estimated $3.54 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 9.75% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Waste Management, Inc. revealed the company was trading above its Graham Number of $36.53. The company pays a dividend of $1.7 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 28, which was below the industry average of 42.59, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-31.74.
Waste Management, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$31.74 |
| Graham Number | $36.53 |
| PEmg | 28.00 |
| Current Ratio | 0.87 |
| PB Ratio | 6.83 |
| Current Dividend | $1.70 |
| Dividend Yield | 1.72% |
| Number of Consecutive Years of Dividend Growth | 14 |
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Most Recent Balance Sheet Figures
| Balance Sheet Information | 9/1/2018 |
| Total Current Assets | $2,675,000,000 |
| Total Current Liabilities | $3,070,000,000 |
| Long-Term Debt | $9,569,000,000 |
| Total Assets | $22,591,000,000 |
| Intangible Assets | $6,944,000,000 |
| Total Liabilities | $16,350,000,000 |
| Shares Outstanding (Diluted Average) | 430,800,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $4.27 |
| Dec2017 | $4.41 |
| Dec2016 | $2.65 |
| Dec2015 | $1.65 |
| Dec2014 | $2.79 |
| Dec2013 | $0.21 |
| Dec2012 | $1.76 |
| Dec2011 | $2.04 |
| Dec2010 | $1.98 |
| Dec2009 | $2.01 |
| Dec2008 | $2.19 |
| Dec2007 | $2.23 |
| Dec2006 | $2.10 |
| Dec2005 | $2.09 |
| Dec2004 | $1.61 |
| Dec2003 | $1.06 |
| Dec2002 | $1.33 |
| Dec2001 | $0.80 |
| Dec2000 | -$0.16 |
| Dec1999 | -$0.65 |
| Dec1998 | -$1.32 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $3.54 |
| Dec2017 | $2.89 |
| Dec2016 | $2.03 |
| Dec2015 | $1.71 |
| Dec2014 | $1.74 |
| Dec2013 | $1.35 |
| Dec2012 | $1.94 |
| Dec2011 | $2.05 |
| Dec2010 | $2.07 |
| Dec2009 | $2.12 |
| Dec2008 | $2.13 |
| Dec2007 | $2.01 |
| Dec2006 | $1.81 |
| Dec2005 | $1.57 |
| Dec2004 | $1.18 |
| Dec2003 | $0.80 |
| Dec2002 | $0.45 |
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Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
