Is It Too Late To Consider Waste Management (WM) After Strong Multi Year Share Gains

• Wondering if Waste Management at around US$215.97 is offering solid value right now, or if most of the upside is already priced in? This article will help you frame that question using a few different valuation lenses.
• The stock has had mixed recent returns, with a 1.7% decline over the last 7 days, a 2.7% gain over 30 days, a 1.1% decline year to date, but a 6.1% return over 1 year and 44.1% and 101.1% over 3 and 5 years respectively.
• Recent coverage of Waste Management has focused on how the company fits into long term themes in essential services and sustainability, which can influence how investors think about the risk profile of the shares. This context can matter when the market reassesses what it is willing to pay for relatively predictable cash flows.
• On Simply Wall St's valuation checks, Waste Management currently scores 3 out of 6, which suggests that some measures point to the shares looking inexpensive while others are more balanced. Next we will walk through the key valuation methods behind that score, and then finish with a different way of thinking about value that can add an extra layer to your analysis.

Waste Management delivered 6.1% returns over the last year. See how this stacks up to the rest of the Commercial Services industry.

Approach 1: Waste Management Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a company could be worth today by projecting its future cash flows and discounting them back to the present.

For Waste Management, Simply Wall St uses a 2 Stage Free Cash Flow to Equity model based on cash flow projections. The latest twelve month free cash flow is about $2.37b. Analyst inputs and subsequent extrapolations suggest free cash flow could reach about $5.20b by 2030, with a series of annual projections in between that are discounted back to today to reflect risk and the time value of money.

Putting those projected cash flows together, the model arrives at an estimated intrinsic value of about $285.91 per share. Compared with the current share price of around $215.97, the DCF output implies the shares trade at roughly a 24.5% discount to this estimate, which indicates that Waste Management appears undervalued according to this model.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Waste Management is undervalued by 24.5%. Track this in your watchlist or portfolio, or discover 885 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Waste Management.

Approach 2: Waste Management Price vs Earnings

For a profitable business like Waste Management, the P/E ratio is a straightforward way to think about what you are paying for each dollar of earnings. It captures how the market is weighing the company’s earnings power, which is often a core driver of long term returns.

What counts as a “normal” P/E depends on how investors see growth potential and risk. Higher expected earnings growth or lower perceived risk can justify a higher P/E, while slower growth or higher risk usually leads to a lower multiple.

Waste Management currently trades on a P/E of about 33.93x. That sits above the Commercial Services industry average of roughly 25.56x and below the peer group average of about 45.70x. Simply Wall St’s Fair Ratio for Waste Management is 32.87x, which is its proprietary estimate of a suitable P/E given factors like earnings growth, margins, industry, market cap and risk profile. Because it is tailored to the company, the Fair Ratio can be more informative than a simple comparison to broad industry or peer averages.

With the current P/E only slightly above the Fair Ratio, Waste Management looks ABOUT RIGHT on this metric.

Result: ABOUT RIGHT

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1449 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Waste Management Narrative

Earlier we mentioned that there is an even better way to understand valuation. On Simply Wall St’s Community page you can use Narratives, which let you set out your own story for Waste Management, tie that story to explicit assumptions for future revenue, earnings, margins and discount rates, translate those into a fair value you can compare to the current share price to help guide your timing, and then see that fair value update automatically as new news or earnings arrive. For example, one investor who focuses on technology, pricing and margin gains might lean toward a fair value near US$277.00, while another who is more cautious about revenue volatility, regulation and leverage might anchor closer to US$198.00. The platform makes these different views easy to build, compare and refine.

Do you think there's more to the story for Waste Management? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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