Waste Management is North America’s leading provider of comprehensive waste management environmental services. I believe they present an excellent investment opportunity because:
Their revenue has been growing steadily over the past 5 years, with the potential to accelerate in the near future.
They have a very profitable business with strong cash flow generation.
They have been quietly outperforming the market and increasing their dividend over the long run.
Steady revenue growth and possible acceleration in the near future
The revenue of WM has been growing steadily over the past 5 years (3.46% per year). Given the construction boom in the U.S. and the potential tailwind from an infrastructure bill, there is a good possibility that revenue growth will accelerate in the near future. Leveraging the largest network of landfills in the U.S. and Canada (268 landfill sites in 2020), they are in an optimal position to manage the increased volume of construction and commercial waste.
They are also the largest residential recycler and have the lowest processing cost in the industry. Given the popular support for environmental protection policies, increasing levels of government regulation should also contribute to revenue growth. The historical revenue trends for WM is given below.
Strong profitability and cash generation
WM has a strong business model with proven profitability. All the relevant metrics are well above the sector median. EBIT margin (17.73%), EBITDA margin (28.79%), and Net Income margin (9.69%) are 60-100% higher than the sector median. Also, they have very strong cash generation ability. Their cash generation from operations have steadily increased from $2.5 B in 2011 to $3.9B in 2021. Their strong profitability and cash generation ability has allowed WM to acquire more landfills and expand strategically over the years. The profitability and cash from operation trend are given below.