How You Can Make Money From Garbage: Waste Management, Inc. (WM), Stericycle Inc (SRCL), Covanta Holding Corporation (CVA)

Waste Management: A New Green Star

This trash hauler’s results for the fourth quarter of 2012 came in below the market’s expectations. It posted adjusted EPS of $0.57, compared to analysts’ consensus estimate of $0.60. Additionally, its 2012 EPS guidance was not very promising, either. I am not very optimistic about the stock’s future, due to the weakness in the sale prices of its recycled products.

On a more positive note, Waste Management, Inc. (NYSE:WM) is making small purchases to achieve a larger goal. It recently completed the acquisition of Greenstar, a private recycler. Annually, Greenstar is capable of recycling around 1.5 million tons of material. Although the acquisition is not a revolutionary step for the company, it brings Waste Management’s total annual recycling capacity close to 15 million tons, a step closer to its 20-million-ton target.

Additionally, there are few small factors that should assist the company’s performance in the future. These include the new share buyback plan of $500 million, an intention to increase the annual dividend to $1.46, and the restructuring initiatives that may lead to a cost saving of $130 million in 2013.

The company’s huge capacity to recycle materials should help improve its overall profitability. But I’ll remain neutral on the stock until the volatility in the sale prices of recycled products stabilizes.

The bottom line

I prefer Stericycle and Covanta over Waste Management, Inc. (NYSE:WM). Both StrongPak and cross-sale opportunities should boost Stericycle’s stock performance in the future. Covanta should also benefit from more power production, especially if natural gas price rises. On the other hand, low prices for recycled goods could hurt Waste Management, at least in the short run.

The article How You Can Make Money From Garbage originally appeared on Fool.com and is written by Madhu Dube.

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