On July 20, 2023, Waste Management Inc (WM, Financial) saw a positive shift in its stock price, gaining 3.12%. The stock is currently priced at $171.9, with a market cap of $69.9 billion. According to GuruFocus's unique indicator, the GF Value, which calculates a stock's intrinsic worth based on historical trading multiples, past performance, and future business performance estimates, Waste Management's stock appears to be fairly valued with a GF Value of $172.66.
As the largest integrated provider of traditional solid waste services in the United States, Waste Management operates approximately 260 active landfills and about 340 transfer stations. The company, a leading recycler in North America, serves residential, commercial, and industrial end markets.
GF Value: An Indicator of Fair Valuation
The GF Value is a proprietary tool developed by GuruFocus to estimate the fair value of a stock. It is calculated based on historical trading multiples, past business growth, and analyst estimates of future business performance. If a stock's price significantly exceeds the GF Value Line, it is considered overvalued and its future return is expected to be poor. On the other hand, if it falls significantly below the GF Value Line, its future return is likely to be higher. Given Waste Management's current price and market cap, the stock shows every sign of being fairly valued.
Because Waste Management is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength and Profitability
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, an investor must review a company’s financial strength before deciding to purchase shares. Waste Management's cash-to-debt ratio is 0.02, ranking worse than 95.63% of companies in the Waste Management industry. However, the overall financial strength of Waste Management is 5 out of 10, indicating fair financial strength.
Consistent profitability over the long term offers less risk for investors. Waste Management has been profitable 10 years over the past decade. Over the past twelve months, the company had a revenue of $19.9 billion and earnings per share of $5.46. Its operating margin is 17.4%, ranking better than 76.39% of companies in the Waste Management industry. Overall, the profitability of Waste Management is ranked 9 out of 10, indicating strong profitability.
Growth and ROIC vs WACC
Growth is a crucial factor in a company's valuation. The 3-year average annual revenue growth of Waste Management is 9.5%, ranking better than 60.51% of companies in the Waste Management industry. The 3-year average EBITDA growth rate is 10.3%, ranking better than 51.89% of companies in the industry.
Comparing a company's return on invested capital (ROIC) with the weighted average cost of capital (WACC) provides another perspective on its profitability. Waste Management's ROIC is 9.55, and its cost of capital is 6.89 for the past 12 months, indicating that the return on invested capital is higher than the cost of capital.
Conclusion
In summary, Waste Management's stock appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 51.89% of companies in the Waste Management industry. For more details about Waste Management stock, you can check out its 30-Year Financials here.
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