On Wednesday, UBS adjusted its stance on Waste Management (NYSE: NYSE:WM), moving from a Buy to a Neutral rating, while increasing the price target to $205 from $190. The revision comes as the stock price approaches the firm's target 14x 2025E EV/EBITDA multiple. The analyst predicts a slowdown in year-over-year pricing growth in the second half of 2024, influenced by decelerating inflation.
Waste Management had recently issued its 2024 guidance, which slightly exceeded market expectations. The company has also slightly upped its sustainability investment capital expenditures. These investments are anticipated to yield approximately $510 million in operating EBITDA by the end of 2026 from renewable natural gas (RNG) initiatives. Additionally, recycling investments are projected to contribute around $350 million by the same year.
In light of these factors, UBS has made modest upward revisions to its adjusted EBITDA forecasts for Waste Management for the years 2024, 2025, and 2026. The new estimates are set at $6.4 billion, $7.0 billion, and $7.5 billion, respectively, adjusted from the previous $6.3 billion, $6.9 billion, and $7.3 billion. These revisions primarily reflect the anticipated contributions from sustainability investments.
Despite the company's consistent and reliable earnings, UBS has adopted a more conservative outlook regarding the near-term potential for the stock's price appreciation. This caution is due to the stock's recent performance and the current high valuation multiples. The firm's assessment reflects a balance between Waste Management's solid financial prospects and the market's valuation of the stock.
InvestingPro Insights
As Waste Management (NYSE: WM) navigates through its sustainability investments and receives upward revisions from UBS, InvestingPro data and tips offer additional insights into the company's financial health and stock performance.
InvestingPro Data metrics indicate that Waste Management has a market capitalization of $80.36 billion, which showcases its significant presence in the industry. The company's P/E ratio stands at a high 33.26, reflecting a premium that investors are willing to pay for its earnings. This is further supported by the adjusted P/E ratio for the last twelve months as of Q4 2023, which is slightly lower at 32.19. Despite a modest revenue growth of 3.7% in the same period, the company's gross profit margin remains robust at 38.28%, underpinning its ability to maintain profitability.
The InvestingPro Tips highlight that Waste Management has a commendable track record of raising its dividend for 20 consecutive years, emphasizing its commitment to returning value to shareholders. Also, six analysts have revised their earnings estimates upwards for the upcoming period, suggesting that the company's financial outlook may be more favorable than previously anticipated.
For readers interested in a deeper analysis, more InvestingPro Tips are available at https://www.investing.com/pro/WM. There are 18 additional tips that can provide further context on Waste Management's stock performance and investment potential. By using coupon code PRONEWS24, users can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, offering a more comprehensive investment tool at a discounted rate.
These insights and tips from InvestingPro should help investors better understand the dynamics of Waste Management's stock as they consider the company's recent guidance and UBS's adjusted stance.
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