Waste Management: Trash to Treasure
This garbage collector should benefit from higher fees, and its energy business, which uses waste to generate electricity, is burning brightly.
If it's a dirty job, Waste Management (symbol WMI) wants to do it. Whether it's taking out the trash at the end of your driveway or disposing of a barrel of toxic waste from the local chemical plant, the Houston-based company is up to the task. Fortunately, as the economy grows, so does its garbage. "The solid waste industry is in the early stage of an improving industry cycle, highlighted by some of the best fundamental business conditions seen in the past five years," says Michael Hoffman, an analyst with investment bank Friedman Billings Ramsey.
The bad news for you is that your garbage bills are probably going up, and there's little your neighborhood association can do about it. Trash collectors, led by Waste Management, have been raising prices for their services since last year. "Garbage companies have only seen minimal resistance to price increases," says Merrill Lynch analyst Lorraine Maikis. And there's no sign of relief for the disgruntled bill-payers. Hoffman expects price hikes to continue until 2008.
But higher trash-collection fees can only last for so long. Unlike some garbage companies, Waste Management has diversified into the energy business. It operates 17 waste-to-energy plants in California, Florida and Washington, and in Northeast states through the company's Wheelabrator subsidiary. The facilities burn solid waste at high temperatures in boilers that produce steam to generate electricity. They can incinerate up to 24,000 tons of solid waste a day. Energy revenue grew 5%, to $879 million, in 2005, which was a higher revenue growth rate than the 4.2% for the rest of the company last year.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Trash isn't the only thing burning brightly at Waste Management. The company reported earnings of $1.2 billion last year, or $2.09 per share, up from $939 million, or $1.60 per share, in 2004. Shares recently traded at $35, or 21 times the $1.67 per share analysts expect the company to earn for this year. Maikis says the stock's valuation is "unwarranted given its industry-leading position, attractive landfill assets and cash generation." She and Hoffman both think the stock is worth $40 a share.
--Thomas M. Anderson
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
Dow Dives 542 Points on Soft Jobs Data: Stock Market Today
The last day of a busy week ends with the first greater-than-1% move in either direction in more than a month.
-
Already Hit Your 401(k) Limit in 2025? Here's What to Do Next
Maxed out your 401(k) contributions, but still want to tuck away money for retirement? Here are seven ways you can take advantage of being a super saver.
-
How to Invest for a Fall Interest Rate Cut by the Fed
A lot can happen between now and then, but the probability the Fed cuts interest rates in September is back above 80%.
-
Are Buffett and Berkshire About to Bail on Kraft Heinz Stock?
Warren Buffett and Berkshire Hathaway own a lot of Kraft Heinz stock, so what happens when they decide to sell KHC?
-
How the Stock Market Performed in the First 6 Months of Trump's Second Term
Six months after President Donald Trump's inauguration, take a look at how the stock market has performed.
-
If You'd Put $1,000 Into Berkshire Hathaway Stock 20 Years Ago, Here's What You'd Have Today
Berkshire Hathaway is a long-time market beater, but the easy money in BRK.B has already been made.
-
If You'd Put $1,000 Into Procter & Gamble Stock 20 Years Ago, Here's What You'd Have Today
Procter & Gamble stock is a dependable dividend grower, but a disappointing long-term holding.
-
My Three-Day Rule for Investing: And If it Applies Now
Stock Market I've seen a lot in my career. Here's what I see now in the stock market.
-
Is It Time to Invest in Europe?
Stock Market Europe is being shaken out of its lethargy, militarily and otherwise, by Donald Trump's changes in U.S. policy. Should investors start buying?
-
Fed Leaves Rates Unchanged: What the Experts Are Saying
Federal Reserve As widely expected, the Federal Open Market Committee took a 'wait-and-see' approach toward borrowing costs.