Waste Management (WM, Financial) has been a consistent performer on the stock exchange and is definitely one of the high-flying stocks that an investor always looks for. The company kept its commitments by delivering another solid fourth quarter also ending fiscal 2014 on a strong note. Its results were impressive which attracted many investors leading to a hike in the share price soon after it posted its results.
The management is now more confident of a better fiscal year ahead on the back of solid track record as well as various strategic initiatives that it has undertaken or it will undertake in the coming fiscal year. With future looking bright, Waste Management wants to continue this momentum rolling. Let us see how?
Trying to improve profitability
Waste Management is now focusing on various initiatives to improve its profitability. This seems easy as the market trends also appear favorable for it. If we look closely, the company appears consistent on improving its EPS. It posted a good increase in the EPS as compared to last year’s same quarter; the growth momentum it is showing looks concrete showing that there is much room for it to improve in the future. However, there are certain headwinds that can obstruct its smooth flow.
Waste Management thinks that it can face currency fluctuations which also impacted its results badly in the recently reported quarter. The revenue fell 1.8% mainly due to currency fluctuation. However, this might be a short-term crunch for Waste Management which might not impact it on a long term.
More catalysts
In addition, there are other strategic moves on which Waste Management is counting on. It is focusing on cutting its costs mainly. This might help it to improve its margins leading to a better financial performance ahead. Under this, it has already sold its interest in Wheelabrator which was a wise decision by it. This has brought in a sum of $1.94 billion to it which the management is now planning to invest in its core businesses. This relentless focus on its core operations will lead better value addition to its shareholders’ wealth and will be a key growth driver in future.
Moving ahead, Waste Management is looking for stretching its footprint in other potential markets. Under this strategic move, it is acquiring Deffenbaugh Disposal Inc. This can be a wise move by the company as this will help Waste Management to establish its presence in Kansas City which is a potential market. Another side of the coin is that, with this acquisition, Waste Management will be in a solid position to compensate the loss that it faced during the sale of Wheelabrator.
There are certain headwinds that are troubling Waste Management. It is finding stiff margins in the waste recycling process under which recycling glass is the main issue. To deal with it, it has decided to raise the charges for recycling glass. This will lead the company to see better recovery in the processing costs. In addition, it is bringing in some more changes such as including force Majeure incidences which will further help it to keep the processing costs on track.
Conclusion
Moving to the fundamentals of the stock, with a trailing P/E of 19.45 the stock looks reasonable and the forward P/E of 20.03 indicates solid earnings growth in the near term. The company can attract investors further with an impressive profit margin of 9.27%. All these signs are favourable for Waste Management and as per investment perspective, Waste Management is definitely a good pick as of now.
