A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. As 2013 begins, I would like to focus on a leading waste management service company in North America: Waste Management, Inc. (NYSE:WM).
The Business:
Warren Buffett once said, “Never invest in a business you can’t understand.” This not only allows the investor to purchase a company with conviction, however also allows them to spot trends blind to unfamiliar eyes. With this in mind, investors in any company should fully understand the business model of the company. Waste Management is a leading provider of waste management services in North America. The company provides collection, recycling, and disposal services. Based on market capitalization, Waste Management is valued at $17.03 billion, and possesses a profit margin of 6.52%.
1). Dividend: Currently, Waste Management pays out quarterly dividends of $0.35, which when annualized puts the dividend yield at 3.87%
2). Institutional Vote of Confidence: 77.20% of shares outstanding are held by institutional investors, displaying the confidence some of largest investors in the world have in the company and its future
3). Relatively Low Volatility: Presently, the company possesses a beta ratio of 0.56, which represents a company trading with considerably less volatility than the overall market
4). Provides Necessary Services: Waste collection and management is a necessity in all cycles of economic activity, and because of this there will always be a demand for Waste Management’s services, providing greater security and predictability for investors
5). Reliable & Steady Revenue Growth: In 2007, Waste Management reported revenue of $13.31 billion; in 2012, the company announced revenue of $13.65 billion, representing year over year growth of 0.51%, a reliable and steady trend that is anticipated to continue into the future, with projections placing 2016 revenue at $15.63 billion
6). Reasonable Valuation: At the moment, the company trades with a price to earnings ratio of 20.85, a price to book ratio of 2.68, and a price to sales ratio of 1.25, all of which indicate a company trading with a reasonable valuation
7). Positive Free Cash Flow Position: In 2011, Waste Management generated $1.2 billion in free cash flow, a major advantage for investors as the company has the ability to reward shareholders or reinvest into its own business
Weaknesses:
Opportunities:
1). Dividend Growth: Since implementing their dividend program in 1986, Waste Management has consistently raised their dividend payouts and is expected to continue this trend well into the future
2). Continuation of Fundamental Trash Trend: Every year North Americans produce more trash, as there are more people each year in the United States, and a continuation of this fundamental trash trend will present opportunity to the company to meet the rising demand for waste collection and management
3). Conversion of Fleet to Natural Gas: One of the largest expenses of the company is gas and diesel to fuel their fleet of waste collection vehicles, but the company has pledged to convert 80% of its truck fleet to running on natural gas, which is nearly half the price of traditional gas on a per gallon basis, and this conversion presents an incredible opportunity for the company over the long haul to save money and improve margins
4). Acquiring New Customers: While Waste Management is the most prominent waste collection company in North America there are still select regions which are serviced by other companies, and the acquisition of any new customers could fuel growth
