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Waste Management Intrinsic Value: DCF (FCF Based)

: $108.53 (As of Today)
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As of today (2022-08-17), Waste Management's intrinsic value calculated from the Discounted Cash Flow model is $108.53.

Note: Discounted Cash Flow model is only suitable for predictable companies (Business Predictability Rank higher than 1-Star). If the company's predictability rank is 1-Star or Not Rated, result may not be accurate due to the low predictability of business and the data will not be stored into our database.

Waste Management's Predictability Rank is 2.5-Stars.

Margin of Safety (FCF Based) using Discounted Cash Flow model for Waste Management is -61.07%.

The industry rank for Waste Management's Intrinsic Value: DCF (FCF Based) or its related term are showing as below:

WM's Price-to-DCF (FCF Based) is ranked worse than
77.78% of 18 companies
in the Waste Management industry
Industry Median: 1.07 vs WM: 1.61

Waste Management Intrinsic Value: DCF (FCF Based) Historical Data

The historical data trend for Waste Management's Intrinsic Value: DCF (FCF Based) can be seen below:

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* Premium members only.

Waste Management Annual Data
Trend Dec12 Dec13 Dec14 Dec15 Dec16 Dec17 Dec18 Dec19 Dec20 Dec21
Intrinsic Value: DCF (FCF Based)
Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only - - - - 126.23

Waste Management Quarterly Data
Sep17 Dec17 Mar18 Jun18 Sep18 Dec18 Mar19 Jun19 Sep19 Dec19 Mar20 Jun20 Sep20 Dec20 Mar21 Jun21 Sep21 Dec21 Mar22 Jun22
Intrinsic Value: DCF (FCF Based) Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only - - 126.23 115.19 108.53

Waste Management Intrinsic Value: DCF (FCF Based) Calculation

This is the intrinsic value calculated from the Discounted Cash Flow model with default parameters. In a discounted cash flow model, the future cash flow is estimated based on a cash flow growth rate and a discount rate. The cash flow of the future is discounted to its current value at the discount rate. All of the discounted future cash flow is added together to get the current intrinsic value of the company.

Usually a two-stage model is used when calculating a stock's intrinsic value using a discounted cash flow model. The first stage is called the growth stage; the second is called the terminal stage. In the growth stage the company grows at a faster rate. Because it cannot grow at that rate forever, a lower rate is used for the terminal stage.

GuruFocus DCF calculator is a two-stage model. The default values are defined as:

1. Discount Rate: d = 9%
A reasonable discount rate assumption should be at least the long term average return of the stock market, which can be estimated from risk free rate plus risk premium of stock market. We used the 10-Year Treasury Constant Maturity Rate as the risk free rate and rounded up to the nearest integer, then added a risk premium of 6% to get the estimated discount rate. Some investors use their expected rate of return, which is also reasonable. A typical discount rate can be anywhere between 6% - 20%.

2. Growth Rate in the growth stage: g1 = 10.70%
Growth Rate in the growth stage = average free cash flow growth rate in the past 10 years. If it is higher than 20%, we use 20%. If it is less than 5%, we use 5% instead. => Average Free Cash Flow Growth Rate in the past 10 years was 10.70% which is less than 20% and higher than 5% => Growth Rate: 10.70%

3. Years of Growth Stage: y1 = 10

4. Terminal Growth Rate: g2 = 4%

5. Years of Terminal Growth: y2 = 10

6. Free Cash Flow per Share: fcf = $5.427.
However, GuruFocus DCF calculator is actually a Discounted Earnings calculator, the EPS without NRI is used as the default. The reason we are doing this is we found that historically stock prices are more correlated with earnings than free cash flow.

All of the default settings can be changed and the results are calculated automatically.

Waste Management's Intrinsic Value: DCF (FCF Based) for today is calculated as

Intrinsic Value: DCF (FCF Based)=Free Cash Flow per Share*{[(1+g1)/(1+d)+(1+g1)^2/(1+d)^2+...+(1+g1)^10/(1+d)^10]
+(1+g1)^10/(1+d)^10*[(1+g2)/(1+d)+(1+g2)^2/(1+d)^2+...+(1+g2)^10/(1+d)^10]}

set x = (1+g1)/(1+d) = (1+0.107)/(1+0.09) = 1.0155963302752
and y = (1+g2)/(1+d) = (1+0.04)/(1+0.09) = 0.95412844036697

Intrinsic Value: DCF (FCF Based)=Free Cash Flow per Share*{[x+x^2+...+x^10]+x^10*[y+y^2+...+y^10]}
=Free Cash Flow per Share*[x*(1-x^10)/(1-x)+x^10*y*(1-y^10)/(1-y)]
=5.427*19.9982
=108.53

Margin of Safety (FCF Based)=(Intrinsic Value: DCF (FCF Based)-Current Price)/Intrinsic Value: DCF (FCF Based)
=(108.53-174.81)/108.53
=-61.07 %

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.


Waste Management  (NYSE:WM) Intrinsic Value: DCF (FCF Based) Explanation

Unlike valuation methods such as Net Current Asset Value, Tangible Book per Share, Graham Number, Median PS Value etc, discounted Cash Flow model evaluates the companies based on their future earnings power instead of their assets.


Be Aware

What you need to know about the DCF model:

1. The DCF model evaluates a company based on its future earnings power
2. Growth is taken into account; therefore a faster growth company is worth more if everything else is the same.
3. Since we are projecting future growth, it is assumed that the company will grow at the same rate as it did during the past 10 years. Therefore this model works better for the companies that have relatively consistent performance.
4. The DCF model works poorly for inconsistent performers such as cyclicals.
5. What discount rate should you use? Your expected return from the investment is a good discount rate assumption.
6. A larger margin of safety should be required for companies with less predictable businesses.

You can screen for stocks that trade below their Intrinsic Value: DCF (FCF Based) and Intrinsic Value: DCF (Earnings Based) with the GuruFocus All-in-One Screener. Companies with a high Predictability Rank that trade at a discount to their Intrinsic Value: DCF (FCF Based) and Intrinsic Value: DCF (Earnings Based) can be found in the screen of Undervalued Predictable Companies.


Waste Management Intrinsic Value: DCF (FCF Based) Related Terms

Thank you for viewing the detailed overview of Waste Management's Intrinsic Value: DCF (FCF Based) provided by GuruFocus.com. Please click on the following links to see related term pages.


Waste Management Business Description

Waste Management logo
Address
800 Capitol Street, Suite 3000, Houston, TX, USA, 77002
Waste Management ranks as the largest integrated provider of traditional solid waste services in the United States, operating approximately 268 active landfills and about 350 transfer stations (includes acquired Advanced Disposal landfills and transfer stations). The company serves residential, commercial, and industrial end markets and is also a leading recycler in North America.
Executives
Carrasco Rafael officer: SVP Operations 800 CAPITOL STREET 3000 HOUSTON TX 77002
Sylvester Maryrose director C/O 3700 WEST JUNEAU AVENUE MILWAUKEE WI 53208
Menke Sean E director C/O IHS INC. 15 INVERNESS WAY EAST ENGLEWOOD CO 80112
Plummer William B director C/O UNITED RENTALS INC / DE 100 FIRST STAMFORD PL STE 700 STAMFORD CT 06902
Watson Michael J. officer: Sr. VP-Chief Customer Officer 800 CAPITOL STREET 3000 HOUSTON TX 77002
Batchelor Steve officer: Sr. Vice President Operations 800 CAPITOL STREET 3000 HOUSTON TX 77002
Oates-forney Tamla officer: Sr VP and Chief HR Officer 800 CAPITOL STREET 3000 HOUSTON TX 77002
Hmmer Tara J. officer: SVP Operat Safety Envir Compl 800 CAPITOL STREET 3000 HOUSTON X1 77002
Nagy Leslie K officer: VP & Chief Accounting Officer 5 GREENWAY PLAZA, SUITE 100 HOUSTON TX 77046
Sjoqvist Nikolaj H officer: SVP, Chief Digital Officer 800 CAPITOL STREET 3000 HOUSTON X1 77002
Boettcher Charles C officer: Sr VP Chief Legal Officer 800 CAPITOL STREET 3000 HOUSTON TX 77002
Shade Darren K officer: VP & Chief Accounting Officer 1001 FANNIN HOUSTON TX 77002
Mazzarella Kathleen M director C/O GRAYBAR ELECTRIC CO., INC 34 N. MERAMEC AVENUE CLAYTON MO 63105
Gluski Andres director 4300 WILSON BOULEVARD ARLINGTON VA 22203
Holt Victoria M director PPG INDUSTRIES, INC. ONE PPG PLACE PITTSBURGH PA 15272

Waste Management Headlines

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