The world is suffocating beneath a mounting pile of garbage. As population growth continues and emerging markets spawn increasing ranks of middle class consumers, the trash glut will only worsen.
That's bad news for the environment, but good news for companies that handle the wasteful ways of modern society. The leader in waste management is Waste Management (WM) , which announced third-quarter earnings this morning before the opening bell.
The company beat expectations, yet it's still a bargain. The stock also sports a healthy dividend yield of 2.9%, making it a great growth-and-income choice. Waste Management also serves as a hedge against recession, because garbage will continue to be generated in vast quantities, regardless of an economic downturn.
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American households, stores, restaurants and other businesses generate more than 250 million tons of solid waste every year, according to the U.S. Environmental Protection Agency. The amount of trash the country produces has tripled since 1960, while the U.S. population has increased only about 90%. The U.S. disposes enough trash every day to fill 50,000 garbage trucks with 18,000 pounds of trash in each.
The search for new methods of disposal is becoming more frantic among federal, state and municipal leaders in the U.S. The problem perplexes global leaders, as well. The United Nations estimates worldwide annual waste production at more than 1.3 billion tons, a figure that's growing every year in the high single digits.
In particular, developing countries face huge waste handling problems, as their newly affluent citizens adopt Western habits of conspicuous consumption.
Waste Management is the world's largest solid waste collection and disposal company. It also treats and disposes of hazardous and medical waste, as well as operating waste-to-energy and landfill gas-to-energy facilities. Through sheer size and geographical diversity, the company is better positioned to capitalize on opportunities in waste management than its smaller competitors Republic Services (RSG) and Casella Waste Systems (CWST) .
As the largest residential recycler in North America, Waste Management expects to recycle more than 20 million tons in the region every year by 2020, up from the 12 million tons the company handled in 2012.
Waste Management's services generate a robust cash flow that it largely devotes to acquisitions, dividends and share buybacks. The company has consistently paid dividends since 1998.
For the third quarter, Waste Management announced revenue of $3.36 billion compared with $3.6 billion for the same period a year ago. Earnings reached $335 million, or earnings a share (EPS) of 74 cents, compared with earnings of $270 million, or EPS of 58 cents, for the same year-ago quarter. Earnings beat the consensus estimate by 2 cents.
And yet, the stock sports a trailing 12-month price-to-earnings (P/E) ratio of only 24.8, compared to 39.1 for its industry of waste management. Waste Management's prudent cost-control measures and consistent debt reduction make this stock an inexpensive bet on the long-term need to handle the world's relentless accumulation of garbage.
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