Waste Management: Still An Appealing Opportunity As Its Big Purchase Nears Completion

Core Viewpoint - Waste Management is experiencing growth in both revenue and profitability, with a recent acquisition of Stericycle valued at $7.15 billion expected to enhance its market position and financial performance [3][4][9] Financial Performance - In the second quarter of the 2024 fiscal year, Waste Management reported revenue of $5.40 billion, a 5.5% increase from $5.12 billion year-over-year [5] - Net income rose from $615 million to $680 million, while operating cash flow increased from $1.03 billion to $1.15 billion [6] - EBITDA expanded from $1.47 billion to $1.62 billion, with management raising guidance for EBITDA and free cash flow by $100 million [6] Revenue Breakdown - Residential revenue grew from $841 million to $863 million, commercial collection revenue increased from $1.26 billion to $1.33 billion, landfill revenue rose from $846 million to $873 million, and transfer revenue grew from $320 million to $348 million [5] - Recycling processes and sales revenue expanded significantly from $316 million to $405 million [5] Acquisition Insights - The acquisition of Stericycle is expected to close in the final quarter of this year, with regulatory approvals already received from multiple countries [4] - The company has made over $750 million in solid waste acquisitions through July, aiming for $1 billion by year-end [6] Valuation Metrics - Waste Management's stock appears relatively cheap compared to similar firms, with a Price/Earnings ratio of 32.6, compared to Republic Services at 34.4 and Waste Connections at 55.4 [7] - The company is viewed as a high-quality business with stable cash flows, despite appearing pricey on an absolute basis [7] Future Outlook - Management expects a net leverage ratio of about 3.6 post-acquisition, with plans to reduce it to between 2.75 and 3 within 24 months [9] - The company is investing in renewable energy projects, budgeting up to $2.9 billion through 2026, with expectations of significant EBITDA contributions from these initiatives [8][9]