Waste Management (WMI) From Garbage To Top Stock Pick

Citi has added Waste Management (WMI) to its Top Picks Live List. Despite an upside surprise in Q2, the stock is down more than 10% from its recent high. Investors have been primarily concerned that WMI is going to overpay for a company called Republic Services (RSG). But Citi is not.

Despite RSG’s recent rejection of WMI’s $37/share offer, Citi is convinced WMI will not make a rash decision:

Waste Management’s restrained and prudent offer of $37 for RSG early last week, coupled with our conversations with both the company and a number of industry sources after Republic’s outright rejection, lead us to believe that this is NOT a “must have” deal for WMI, which could result in a bout of deal fever and a “drop dead” high price being offered as a result. As this becomes apparent, in our opinion, we believe investors can re-focus on sustained, robust industry and company fundamentals that were reaffirmed by management on road shows we hosted for both WMI and RSG recently.

Key catalysts for Citi:

  • WMI should prove to be a beneficiary of lower oil, as the one-month lag factor of its fuel surcharge becomes a tailwind instead of a headwind (this cost $0.01-$0.02 in each of the first and second quarters.)
  • conservative guidance
  • strong cash flow
  • purely domestic nature of the company (i.e. everyone else is screwed like the US, but on a lag)

Citi reiterates BUY on Waste Management (WMI) and adds WMI to Top Picks Live List, target $47.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.