WASTE

MANAGEMENT, INC.
December 8th, 2015
 Categories

Company overview
Investment thesis
Industry & Market analysis
Business Model
Management Team
Risk analysis
Valuation
Company Overview Recommendation: hold/sell
The largest waste services company in the Market Cap: $23.51b
US Beta: 0.85
Five sectors:
52week range: $45.86 - $55.93
collection (52%)
Todays price: $52.66
landfill (17%)
1-year Target Price: $44.01
transfer (8%) 2014 Revenue Breakdown
EPS: $2.33
Other
Wheelabrator (5%) (sold)
Div: $1.54 Recycling
Collection
Wheelabrator
Recycling (8%)
P/E: 22.57 Transfer

Other (10%) Landfill

Collection Landfill Transfer Wheelabrator Recycling Other

Data from: Yahoo Finance

 3 major Revenue Sources (70%)
9000

8000

7000

6000

5000

4000

3000

2000

1000

0
2009 2010 2011 2012 2013 2014
Collection Landfill Transfer
 Other 3 Revenue Sources
4500

4000

3500

3000

2500

2000

1500

1000

500

0
2009 2010 2011 2012 2013 2014
Wheelabrator Recycling Other
 Revenue Growth VS. Operating Margin
14500 16.0%

14000 15.5%

13500 15.0%

13000 14.5%

12500 14.0%

12000 13.5%

11500 13.0%
2010 2011 2012 2013 2014

Revenue Operating Margin

 Investment Thesis Recommendation: hold

Compelling advantages
252 landfills
298 transfer stations
125 MRFs
But not a good time to buy
Overvalued stock prices
heavy regulation risks
60% Discounted Cash Flow predicted lower profit margin
20% P/E Target Price $44.01
20% EV/EBITDA Target Price
 Industry and Market Analysis
Collection: 1.3% annual revenue growth 2015-2020 (recycling impact, increasing
privatization of waste collection operation of municipalities)
Recycling: 3.2% annual revenue growth 2015-2020 (zero-landfill goal, increasing
population)
Landfill: 5.5% annual revenue growth 2015-2020 (large landfill capacities)
Transfer: will continue benefiting from large transfer stations

Data from: IbisWrold

 Porters Five forces
Threat of new Entrants: Bargaining power of customers:
High barriers to enter Collection of waste (high: residential)
(hard to build landfills) Sell recyclables (match market prices)

Competitive
Rivalry (municipalities,
regional companies)

Threat of substitution:
Bargaining power of suppliers:
Low
Buy recyclables (match market prices)
(Extended Producer Responsibilities)
 Business Model
Collection of Waste 298 Transfer Stations 126 Material
$ $ Recovery Facilities
(MRFs)
Residential (3yr) Internalization
Commercial (3yr) Plastics, metals,
Third parties
paper, cardboard,
Industrial (3yr) disposal
glass
Other Sold to the world $
Recycling $
brokerage services

Fuel electricity 134

generator (107 Landfill-
landfills) Since 2015
gas-to
energy
Used at landfills/ delivered to
projects$ 252 Landfills Fixed volume
industrial customers as fossil
fuel substitute (at 16 $ of waste to
landfills) Wheelabrator
processed to pipeline-quality natural gas and
then sold to natural gas suppliers (10 $
landfills)
Management Team
All the board members are very experienced in the waste industry
Have been to this company for at least 14 years (one of their COO: 36 years)
Several board of directors have been on the board for more than 3 years, which tends to
cause non-independence of directors when making decisions

ISS Corporate Governance Score

Overall 4

Board Structure 8 Compensation 5

Shareholder Rights 3 Audit & Risk Oversight 1
 Risk Analysis
Negligible Minor Moderate Signific Severe
ant
Very Likely Regulation
on landfills

Likely Commodity prices

Possible Competitors;
General Economic
Conditions
Unlikely Extended
Producer
Responsibilities
(EPR)
Very Unlikely
Competition landscape
3 entities account for 70%+
Two major companies: Waste
Management, Republic Services

Municipalities
Increasing trend to out bid
their waste collection
operations (replacement of
fleets, changing regulations)

Regional and local companies

Competitive to win on a
municipal bid
Commodity Prices

http://portal.ncdenr.org/web/deao/rbac/pricing-trends
Oil VS. Natural gas prices

Data from: knoema.com

Regulations
Landfills

Data from: 2014 Annual Report

Regulations
Extended Producer Responsibilities (EPR) (good)
Valuation comparable companies
Valuation Multiples
Valuation Discounted Cash Flow (DCF)
Dollars in millions 2015 2016 2017 2018 2019
After tax EBIT 645.4 667.7 695.0 72.2.7 750.7 WASTE MANAGEMENT

Depr,eciation and amortizatii on 1, 161.6 1, 184.1 1,206.9 1

1,230.0 1,253.6
Change in worki11g capital 21.3 10.0 10.1 10.3 10.4
Capex 1,272.0 1,272.0 1,272.0 1,272.0 1,272.0
Free cash flow 513.8 56'9.8 ,6 1'9.8 ,670.5 721.8

Perpetual Growth
Method 721.8
201'9 free cashflow 2.0%
P,erpetual,growth rate 4.3%
WACC 31,517.'6
Terminal Value

Exit Multiple Method 17.5x

Expected EV/EB!IT 2,178.8
201'9 EB!IT 38,183.5
Te-rminal Value

Implied Stock
PV of FCF Price 2,71 1.1
PV of TerminalVa lue 28,186.2
Implied Enterp,rise Value 30,.8!97.3
Debt 9,435.0
Cash 1,307.0
lmpli,ed Mark,et Value of Equity 22,7,6'9.3
Shar,es Outstanding 465.6
1 Year Targ,et Price 48,.9,
 Investment Thesis Recommendation: hold/sell

Compelling advantages
252 landfills
298 transfer stations
125 MRFs
But not a good time to buy
Overvalued stock prices
heavy regulation risks
60% Discounted Cash Flow predicted lower margin
20% P/E Target Price $44.01
20% EV/EBITDA Target Price
Questions?
Good luck on finals!