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Quasi-monopoly Waste Management (WM)

Waste Management is a quasi-monopoly that recently changed its name to WM

My book contents related to Waste Management

I have introduced the company Waste Management (ticker: WM) in my book, and the content in the book will not be repeated. Investors are invited to refer to me at:

The most famous shareholder

As of August 2024, 83% of the $48 billion portfolio of billionaire Bill Gates’ Bill Gates Trust is invested in 4 stocks. The Bill Gates Trust holds more than 35 million shares of Waste Management shares, valued at $7.3 billion. It is his third largest holding, accounting for 16% of the total investment portfolio of the Bill Gates Trust Fund.

Company Profile

Not just waste management

Waste Management is a quasi-monopoly that recently changed its name to WM because it is now more than just a fledgling waste management company.

Dirty trash is profitable

So what does garbage have to attract investors? Peter Lynch said in his book ““One Up on Wall Street”, Peter Lynch’s great book for investing newbie“: Most people hate dirty, but as an investor, you should like it; because the dirtier the business looks, , the more profitable it is!

Only two other smaller contenders

Trash will not disappear in our society. Waste Management is one of the only major waste disposal companies in the United States. Republic Services (ticker: RSG) is the second largest in the industry, Waste Connections (ticker: WCN) is the third, that’s all, other players are small, like Clean Harbors (ticker: CLH), and can be ignored.

Moats

Business is sustainable

Earning steady and predictable profits from businesses involving landfills, renewable energy tax credits are sustainable business income. Sustainability businesses are also complementary and profitable when commodity prices are low or when economic conditions are bad, such as now.

Barrier to entry is high

That’s because they control America’s landfills. I would say that Waste Management has about 260 landfills and 340 transfer stations across the country. The biggest competitor, Republic, has 206.

Related businesses are also profitable

So they control the business, and as I said, we’re producing as much trash as we’ve ever been, and even recyclables are a big part of the business. So ownership of these landfills is really a barrier to entry.

Licenses are highly regulated

It’s a highly regulated industry in the sense that anything to do with waste, trash or recycling has regulations, but isn’t protected by those regulations. You do need a permit for these landfills, and they’re not handed out like candy anymore. Therefore, their influence in this field has been very deep-rooted.

Services provided by WM

Waste removal

This is also understandable to most people. The most primitive service provided by WM when it was founded────that is, general garbage removal.

Green recycling

Efforts to reduce greenhouse gas emissions and reuse materials are making it more profitable to extract energy from landfills and sift green-economy hot commodities like detergent bottles and cardboard boxes from trash.

“In the past, cardboard might have been mixed with waste paper. Now we can sort out more of this cardboard and pack it specifically, and the price of cardboard is much higher than that of waste paper.”

WM said the value of the mixed commodity produced at its automated material recycling facility was up around 15% per tonne. The machines not only recycle more and more valuable stuff, but the recovered material is cleaner and can be sold at a higher price than mixed paper, the company says.

Methane separation

WM and Republic are building plants to separate methane from decaying garbage emissions and introduce it into the natural gas grid to be burned in power plants, furnaces and kitchens. They’re also equipping recycling facilities with the latest automation to better sort and process materials for consumer-goods companies that are under pressure to keep their packaging out of landfills and oceans.

Landfill gas production will increase eightfold and is expected to generate an additional earnings before interest, taxes, depreciation and amortization (EBITDA) of more than $500 million by the end of 2026, WM said. The actual fuel sells for $2.50, which is about the same price as recent gas from geological wells. The other is an expected $23.50 payment premium through renewable energy tax credits, which is in line with recent deals, according to energy information firm Platts.

Tax incentives

Landfill owners predict hundreds of millions of dollars in additional profits due to increased demand for recycled materials and tax incentives to generate energy from emissions that would otherwise enter the atmosphere. None of the company’s business outlooks announced so far have taken into account the at least $250 million in tax breaks WM expects to receive for building a new waste gasification plant.

Business

Performance

They generated $20 billion in revenue, $3 billion in operating income.

Business can’t go away

This is a relatively safe investment. It’s a relatively recession-resistant business because even in the center of the pandemic, we’re still producing a lot of waste, not that much because people aren’t in the office, they’re in the office. Commercial business is tough. But it’s relatively recession-resistant because in good times and bad, we’re still producing all the waste that needs to be collected, transported, and disposed of.

Future outlook

WM, which operates more than 250 landfills, is in its second year of a four-year plan to spend $1.2 billion to add 20 waste gasification plants and spend $1 billion to expand and automate its recycling operations.

The company expects the new and upgraded facility to increase its recycling of reusable materials by 25% by 2025. Letting the machines dry to dispose of trash and unsavory messes would also reduce labor costs, the management team said.

Capital market performance

Government favour

Since U.S. President Joe Biden (Joe Biden) signed a package of bills involving climate change, taxation and health care in August 2022, the stock prices of WM and Republic Services, the largest companies in the U.S. waste disposal industry, have hit record highs in the first half of 2023. reached a record high.

Share price performance

Shares of Waste Management have soared about 95% over the past five years. That’s a pretty good number for a utility company.

Dividend

Waste Management has increased its dividend for 17 years in a row, and it’s currently yielding about 1.7%, which isn’t astronomical. That’s probably the average yield for the S&P 500 right now, but it’s still pretty good, and as I said, they increase their dividend every year.

Valuation is not cheap

So it’s a very interesting company, not as cheap as some of the other utilities we mentioned, this trades at about 27 times Republic Services’ forward earnings and 26 times forward earnings. So just be together. As a result, the price has seen some growth again, trading at a premium to the S&P 500. Overall, this is a fantastic business that will remain consistent over time.

Conclusion

Remember, Waste Management is not just a waste management company.

Waste Management
credit: Waste Management

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