Waste Management, Inc. WM shares have gained 11% in the past six months, while the industry has seen a modest loss.

Key competitors' performance has been mixed during this time, with Republic Services RSG rising 14% and Clean Harbors CLH declining 10%.

Given the consolidation, let's explore the factors shaping WM’s performance and evaluate whether this is an opportune moment to invest in the company.

WM: Sustainability, Stability and Growth Combined

Over the years, WM has shown consistent revenue growth. The company's business model is recession-resistant because waste management is an essential service, regardless of economic conditions. WM’s robust waste collection, recycling and disposal infrastructure creates a steady revenue stream, making it a dependable investment option during market fluctuations.

Additionally, WM has embraced sustainability initiatives and innovation, such as converting landfill gas into renewable energy, which solidifies its growth prospects and positions it as a leader in the green economy. These efforts align with global shifts toward environmentally responsible practices, attracting ESG-focused investors. Its steady financial performance appeals to risk-averse investors looking for long-term stable returns. WM's revenues and operating income have both witnesses a compound annual growth rate of 7.7% from 2020 to 2024.

WM's focus on pricing and cost control is key to maintaining healthy profit margins. By carefully managing expenses, optimizing routes and improving operational processes, the company reduces unnecessary costs while providing high-quality services. This approach also ensures that price adjustments are justified and aligned with market demand, protecting margins even in fluctuating economic conditions. WM emphasizes enhancements in service delivery and operational efficiency. By integrating modern technology and process improvements, the company reduces costs and boosts service reliability and customer satisfaction.

WM’s Reliable Dividend Payout

Waste Management has demonstrated a remarkable commitment to rewarding its shareholders, maintaining a consistent dividend payment record since 1998. This consistency has continued despite fluctuations in the company’s cash position, underscoring its dedication to creating long-term value for investors. It paid $1.1 billion, $1.1 billion, and $1.2 billion in dividends in 2022, 2023, and 2024, respectively.

The Stericycle Acquisition

Waste Management recently acquired Stericycle. The company anticipates that the acquisition will be accretive to its earnings and cash flows within one year of closing, with more than $125 million in annual run-rate synergies. Stericycle holds a leading position in the growing medical waste industry. The acquisition adds complementary business platforms to enhance WM’s comprehensive waste and environmental solutions.

WM Stock Seems Overvalued

While WM’s growth prospects are promising, its current valuation appears elevated. The stock is trading at a trailing 12-month Enterprise Value/EBITDA ratio of 17.62X, which is above the industry average of 13.11X. The forward 12-month Price/Sales ratio for WM stands at 3.6X compared with the industry average of 2.8X.

WM: A Clear Hold Recommendation

WM remains a solid long-term investment option due to its consistent revenue growth, robust dividend payouts, and focus on sustainability. The company’s recession-resistant business model and strategic acquisitions enhance its competitive edge and growth potential. However, WM’s stock is currently consolidating and still appears overvalued, with valuation metrics exceeding industry averages. While near-term upside may be limited, WM’s steady performance and ability to weather economic fluctuations make it a dependable choice for risk-averse investors. Holding the stock allows investors to benefit from its long-term stability and dividends while awaiting better entry points for additional investments.

WM currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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