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Hype Asset of the Day | February, 13th, 2022



Waste Management, Inc. (NYSE: WM)

Cashing in on steady trash demand, WM is one of the country's largest collection, recycling, and disposal services companies. Waste Management, Inc., sometimes known as WM, is a North American-based provider of waste management, comprehensive waste management, and environmental services. The company's headquarters are in Houston, Texas's Bank of America Tower, where it was founded in 1968. The company's network consists of 6 independent power plants, 111 landfill gas projects, 146 recycling facilities, 293 active waste disposal sites, and 346 transfer terminals and is the undisputable leader in North America. Considering its recent success, the company has seen an increase in mentions by 340% over the last day, prompting investors to wonder whether they should consider taking a position in the company now. Shares of Waste Management currently trade at $154.07.


Positive Hype

Waste Management is a dominant leader in a stable industry, enabling the company to generate positive hype. Here are some factors that contribute to it.


  • The company is the top North American trash collector and recycler, with a 24% market share which is the greatest share by any individual company.


  • Demand for these services also tends to be relatively recession-resistant, which enables WM to produce a steady cash flow. Trailing-12-month free cash flow was close to $2 billion despite the company spending an impressive $2.5 billion on capital expenditures.


  • While revenue only jumped 9% year over year to $5.1 billion in Q3 2022, the company's net income rose far faster -- growing 19% over the same period to $639 million.


  • As of this summer, it had completed 88 acquisitions over the past five years, bringing in $560 million of incremental annualized revenue.


  • The company recently increased its 1.7%-yielding dividend by 7.7%, marking its 12th straight year of dividend increases. It also approved a new $1.5 billion share repurchase authorization. A payout ratio of 47% means the company has plenty of wiggle room for more hikes in the future.


  • WM continues to make growth-focused investments as opportunities arise. It's currently investing $825 million through 2025 to increase its renewable natural gas production capacity.


  • The company is also investing to increase its recycling capabilities and steadily acquiring small waste collection companies. These investments should help grow its stable earnings, so it can continue repurchasing shares and increasing the dividend.


  • Considering WM reached 6.7% in the first half of 2022 -- the company's highest core price over the past seven years -- Waste Management seems to be flexing some impressive pricing power. The core price is a performance metric used by management to evaluate the effectiveness of its pricing strategies.



Negative Hype

No investment, no matter how great it may seem, is free of risk. Here are some reasons why you might not want to take a position in Waste Management based on negative hype.


  • Shares of Waste Management slumped after it reported its fiscal year and fourth-quarter earning as the company fell short of analyst expectations.


  • The company's price-to-earnings (P/E) ratio was recently near 29, very close to its five-year average, and its price/earnings-to-growth (PEG) ratio was 2.5, well above a score of 1.0, which would traditionally suggest fair value but does not qualify for bargain territory. Investors might see that as a little too expensive.


Conclusion

Waste Management, offers investors a powerful combination of a strong business with undeniable competitive advantages and an attractive quarterly cash payment to shareholders. Shares slumped only 6% last year. Considering other stocks plunged 30%, 40%, and even 50%, many investors would have loved to see their investments perform this well. Given the stability WM provides, it would be a great defensive investment to add to your portfolio.


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