HSBC has elevated its rating for Waste Management (WM, Financial) from Hold to Buy, with an enhanced price target set at $265, up from the previous $210. The upgrade comes amid a backdrop of a rapidly changing tariff landscape and mounting concerns regarding consumer spending and overall economic growth, which have created a challenging outlook for many U.S. industrial stocks.
In this uncertain environment, HSBC emphasizes the importance of investing in quality stocks that can maintain high and sustainable margins and returns, and further recommends focusing on those with minimal tariff exposure. Waste Management stands out as a company that not only minimizes risks associated with tariffs and economic fluctuations but also promises attractive long-term growth potential.
HSBC's analysis suggests that, even in weaker economic conditions, Waste Management is well-positioned to continue its earnings growth, making it an appealing option for investors looking for stability and profit resilience in these turbulent times.
Wall Street Analysts Forecast
Based on the one-year price targets offered by 19 analysts, the average target price for Waste Management Inc (WM, Financial) is $240.44 with a high estimate of $262.00 and a low estimate of $193.44. The average target implies an upside of 5.70% from the current price of $227.47. More detailed estimate data can be found on the Waste Management Inc (WM) Forecast page.
Based on the consensus recommendation from 23 brokerage firms, Waste Management Inc's (WM, Financial) average brokerage recommendation is currently 2.3, indicating "Outperform" status. The rating scale ranges from 1 to 5, where 1 signifies Strong Buy, and 5 denotes Sell.
Based on GuruFocus estimates, the estimated GF Value for Waste Management Inc (WM, Financial) in one year is $234.06, suggesting a upside of 2.9% from the current price of $227.47. GF Value is GuruFocus' estimate of the fair value that the stock should be traded at. It is calculated based on the historical multiples the stock has traded at previously, as well as past business growth and the future estimates of the business' performance. More detailed data can be found on the Waste Management Inc (WM) Summary page.
WM Key Business Developments
Release Date: January 30, 2025
- Operating EBITDA Growth: More than 10% in the legacy business for 2024.
- Full-Year Operating EBITDA Margin: Achieved 30% for the first time in company history.
- Collection and Disposal Operating EBITDA Margin: 37.2% for 2024, the highest ever.
- Revenue Growth: Supported by a collection and disposal yield of 4.5% and core price of 6.7%.
- Operating Expenses: 60.7% of revenue for the full year, improved by 100 basis points from 2023.
- Labor Costs: Declined by 60 basis points as a percentage of revenue compared to 2023.
- Driver Turnover: Lowest ever at 15%, improved by over 300 basis points from 2023.
- Free Cash Flow Before Sustainability Investments: $3.27 billion, a 22.5% increase over 2023.
- Cash Flow from Operations: Grew more than 14% to $5.39 billion in 2024.
- SG&A as a Percentage of Revenue: 9.6% for the full year, with a 10-basis-point improvement for the legacy business.
- 2025 Operating EBITDA Growth Expectation: 15% growth, nearly $1 billion increase compared to 2024.
- Capital Expenditures for 2025: Targeted between $3.175 billion and $3.275 billion.
- Free Cash Flow Growth Expectation for 2025: More than 17% to $2.725 billion at the midpoint of the outlook.
- Synergy Capture from Stericycle Acquisition: Expected $250 million over three years, with up to $100 million in 2025.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Waste Management Inc (WM, Financial) achieved a record 30% full-year operating EBITDA margin for the first time in its history.
- The company brought five renewable natural gas facilities online, expanding its renewable energy platform.
- WM successfully completed the acquisition of Stericycle, enhancing its suite of environmental services.
- The company reported a 10.4% growth in operating EBITDA in its collection and disposal business in 2024.
- WM's strong operating performance translated into robust cash flow generation, with cash flow from operations growing more than 14% to $5.39 billion.
Negative Points
- WM faces a $63 million headwind from the expiration of alternative fuel tax credits.
- The industrial business remains soft, with no significant rebound expected in 2025.
- The company anticipates increased cash interest expenses, with $350 million to $400 million higher in 2025.
- Recycling commodity prices are expected to be lower in 2025, potentially impacting revenue.
- The integration of Stericycle involves ongoing ERP challenges, with $35 million to $40 million expected in incremental spend for 2025.
