Shares of Waste Management, Inc. (WM) scaled a 52-week high of $46.43 during yesterday’s trading session, before closing a notch lower at $46.33. This translates to a modest one-year return of 10.0%.
Waste Management’s share price has been on an uptrend since April this year. Despite its price appreciation, Waste Management still has the wherewithal for the stock to climb up. The stock is currently trading at a forward P/E of 19.5x and has long-term earnings growth expectation of 8.5%.
Growth Drivers
Waste Management inked a definitive agreement with private equity firm Energy Capital Partners on Jul 29 to divest its subsidiary Wheelabrator Technologies Inc. for about $1.94 billion in cash. The strategic move was intended to concentrate more on the core operations of Waste Management and reduce earnings volatility related to electricity sales.
Although Wheelabrator helped Waste Management’s waste-to-energy business flourish and generated approximately $845 million in total revenue in 2013, it was deemed to be a misfit for the long-term corporate objectives. Consequently, Waste Management decided to offload the business in the best interests of its shareholders.
Waste Management intends to utilize the proceeds from the asset sale to drive incremental shareholder value in a way that would lead to earnings accretion in the long term. The company expects to follow a combination of share repurchase activities and acquisition of similar firms to judiciously use the sale proceeds.
Waste Management expects an earnings accretion of 2 cents per share in 2015 if the proceeds are entirely utilized for share repurchase activities. However, if the acquisition of potential targets is found to yield better earnings accretion, the company might pursue those opportunities instead.
All these measures probably raised investor confidence and drove the shares to a 52-week high.
Other Stocks to Consider
Waste Management currently has a Zacks Rank #3 (Hold). Other players in the industry worth mentioning include US Ecology, Inc. (ECOL), ITT Corporation (ITT) and Federal Signal Corp. (FSS), each carrying a Zacks Rank #2 (Buy).
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