Waste Management (WM) stock has done well in the past few decades, making it one of the best-performing non-tech companies in the United States. It started trading in 1971 at $16.50 a share and has climbed to $211. Excluding the four stock splits, its shares have had higher gains.
Biggest wate management company in the US
Waste Management has grown into the biggest wate management company in the US. It has done that by buying local companies in the industry. Some of the most notable buyouts were companies like Ribicon, Big Green Box, Advanced Disposal Services, and Deffenbaugh Disposal.
The most recent acquisition was the $7.2 billion it spent to buy Stericycle, a leading player in the medical waste management industry.
This growth can be seen well in its financial results. Revenues rose from $15.45 billion in 2019 to $20.4 billion in the last financial year. Its net income has grown from $1.6 billion to $2.5 billion in the same period.
Investors love WM because of its strong revenue and profitability growth, its strong market share, and its consistent dividends. It is a future dividend aristocrat that has boosted its payouts in the last 20 years.
Additionally, Waste Management is a conservative company that has a 41.80% payout ratio, giving it room to continue growing its payouts.
WM is also expanding its business, especially in the renewable energy industry. It does this by harvesting methane in its landfills and selling it in different forms, including RNG, electricity, and heat.
Most importantly, WM has become a top player in the climate change industry by selling Renewable Identification Numbers (RIN) credits. It sells these credits to companies that are aiming to become carbon neutral.
The most recent financial results showed that Waste Management’s revenue rose by 5.5% in the last quarter. This revenue growth was mostly because of its price increase and higher recycled prices. Revenue rose from $5.11 billion in the second quarter of 2023 to $5.4 billion.
Waste Management’s net income rose from $615 million to $680 million. The management also boosted its forward guidance for the third quarter and full year.
Analysts expect that WM’s revenue will rise by 6.10% to $5.5 billion, while its full-year revenue will be $21.4 billion. Its 2025 revenue will be $22.5 billion.
Stericycle’s revenue in 2023 was $2.6 billion, and analysts expect that its revenue will be $2.8 billion next year. These figures will move to Waste Management when the deal closes.
Read more: Waste Management: is this Bill Gates-backed stock a good buy?
Republic Services is a good waste management stock
Waste Management is a good company, as I have written before. However, past performance shows that Republic Services, its biggest competitor is better.
Republic is a large company that owns 364 collection operations, 74 recycling centers, 204 landfills, and 246 transfer stations.
Like WM, its annual revenue has grown from $10.2 billion in 2019 to $15 billion last year. Most of this growth was organic since the company has not made many large acquisitions. Its most recent acquisitions were US Ecology in 2022 and GFL environmental’s operations in Colorado and New Mexico.
Republic has also been a good dividend payer. It has boosted its dividend in the last 20 years, and has a small payout ratio of 35%.
Why RSG is better than WM
There are a few reasons why Republic Services is a better investment than Waste Management. First, it is having stronger growth metrics than WM. Its trailing revenue growth was 7.85%, while its revenue growth metric is 8%. WM’s metrics are 4.7% and 5.29%, respectively.
RSG’s forward EBITDA and diluted EPS growth metrics were 10.2% and 11.68%, compared to WM’s 8.6% and 10.5%.
Second, Republic has better gross margins than WM. It has a gross profit margin of 42% compared to WM’s 39%. On the positive side, the two have similar EBIT and net profit margins.
Third, while the medical waste industry is growing, there are chances that Stericycle will be a drag to Waste Management. Stericycle’s annual revenue has been flat in the past few years. It made $2.67 billion in 2020 and $2.65 billion in the last financial year.
Stericycle is also not a highly profitable company. It made a net loss of $57.3 million in 2020, narrowed it to $27.8 million in 2021, and turned a $56 million profit in 2022. It then made a $21.4 million loss in 2023. Therefore, the company will likely drag Waste Management in the long run.
Finally, while historic performance is not always a good indicator of what will happen in the future, it often makes sense to invest in past winners. RSG stock’s total return in the last five years was 152%, higher than WM’s 95%. The same has happened in the last twelve months as it has risen by 40% vs WM’s 36%. The chart above shows their three-year returns.
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