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| Waste
Management (WMI) is No Waste For Investors |
Published: October 27, 2006
In late October, trash hauler Waste Management posted across-the-board third-quarter improvements.
Along with its rivals, WMI has successfully pushed through several price increases since last year, and that favorable pricing environment helped lift revenues for the period +2% to $3.4 billion.
More importantly, the company was able to make significant improvements to its cost efficiencies during the quarter and slashed more than $20 million in expenses off its income statement. That, in turn, allowed operating margins to expand 150 basis points, driving net income up +40% to $300 million.
Better still, thanks to a reduction of 20 million in the number of shares outstanding, earnings per-share spiked +45% to $0.55 -- shattering analysts' forecasts.
Wall Street had a lukewarm reaction to the results, possibly because of WMI's soft top-line results. However, weak revenues should not be alarming. Not only is the firm deliberately sacrificing volume for higher pricing, but it is also in the process of unloading several less-profitable business lines.
Thus far, that strategy has paid off handsomely, enabling the firm to shed lower-margin accounts and shave operating costs for the fifth straight quarter.
While revenue growth is important, we are much more interested in the cash flow department, which remains healthy. Free cash flow generated during the quarter rose +12% year-over-year to reach $431 million, and nearly all of that was returned to shareholders in the form of dividends and share repurchases.
With three solid quarters now in the books and landfill pricing rising at the fastest pace in nearly two years (allowing WMI to collect higher "tipping fees" from rivals who have no available dumping sites), management has lifted the upper-end of its full-year earnings target from $1.75 to $1.81.
Clearly, the company looks to close out fiscal 2006 on a high note, which should help WMI extend its recent upward march and move closer to our $54 fair-value estimate.
Note:
The above article was free advice given by Nathan
Slaughter and Paul Tracy -- the editors of Half-Priced
Stocks. The mission of Half-Priced Stocks is to
help readers identify securities that are trading at a steep
discount to their intrinsic net worth. In some cases this
discount can reach up to 50% or more, giving savvy value
investors the chance to purchase quality stocks for just pennies
on the dollar. To learn more about our Half-Priced Stocks
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Thanks for reading!
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Nathan Slaughter
Editor
Half-Priced Stocks, The ETF Authority
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