A prudent investment decision involves buying stocks that have solid prospects and selling those that carry risks. At times, it is rational to hold certain stocks that have enough potential but are weighed down by tough market conditions.
In a year's time, shares of the company have rallied 15.5%, outperforming the 7.8% increase of the industry it belongs to.
We believe the stock has the potential to exceed expectations moving ahead. The reasons behind our optimism include the company's continuous efforts to strengthen operations and a consistent record of returning value to shareholders in the form of dividend and share repurchases.
Let's discuss them in detail.
Core Business Activities Fetching Better Margins
Waste Management continues to execute its core operating objectives as well as instill price and cost discipline to achieve better margins. Moreover, the company intends to focus on improving customer retention by providing better service and higher value solutions.
The acquisition of Anderson Rubbish Disposal and Moorpark Rubbish Disposal will further help Waste Management to strengthen its existing operations. A steady stream of such accretive buyouts is likely to drive earnings.
Waste Management, Inc. Gross Margin (TTM)
Returning Value to Shareholders
The company has a consistent record of returning value to shareholders in the form of dividend and share repurchases. Waste Management paid dividends of $750 million, $726 million and $695 million to its shareholders in 2017, 2016 and 2015, respectively. The company repurchased shares amounting to a respective $750 million, $725 million and $600 million in 2017, 2016 and 2015.
Waste Management plans to return significant cash to shareholders through healthy dividends and share repurchases in the future as well. These initiatives should boost shareholders' returns in the long term.
Bullish Outlook for 2018
Waste Management provided a bullish outlook for 2018. Adjusted earnings are expected to be in the range of $3.97-$4.05 per share. Free cash flow is projected to lie between $1.95 billion and $2.05 billion. Also, internal revenues from collection and disposal business are anticipated to grow minimum 2%, while the same from volume is envisioned in the 2-2.2% band. Such an upbeat outlook raises investor confidence on the stock.
Zacks Rank & Key Picks
Waste Management has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Business Services sector include Verifone Systems, Inc. PAY , FLEETCOR Technologies, Inc. FLT and WEX Inc. WEX . While Verifone and FLEETCOR Technologies carry a Zacks Rank #2 (Buy), WEX sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
The long-term expected earnings per share growth rate for Verifone, FLEETCOR Technologies and WEX is 14.9%, 16.5% and 14.3%, respectively.
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