Projected Yield: ~ 3.68%
Founded in 1894, Waste Management is the nation's largest provider of collection, transfer, recycling, disposal, and waste-to-energy services. The firm serves nearly 20 million customers in the commercial, industrial, municipal, and residential markets. It has 268 landfills that receive 115 million tons of waste per year. Waste Management is the largest provider of domestic recycling services and generates roughly 56% of its revenue from its waste collection business.
I estimated the firm's WACC today at 7.32% using the Capital Asset Pricing Model and the company's recent SEC filings.
Recent free cash flows and noted growth rates:
| Year | FCF $Millions |
| 2001 | 1027 |
| 2002 | 866 |
| 2003 | 726 |
| 2004 | 960 |
| 2005 | 1211 |
| 2006 | 1211 |
| 2007 | 1228 |
| 2008 | 1354 |
| 2009 | 1183 |
| 2010 | 1171 |
Average Annual Growth FCF: approx. 3%
CAGR FCF: approx. 1.5%
Consensus Forecast Industry 5-Year Growth: approx. 17% per yearConsensus Forecast Company 5-Year Growth: approx. 10% per year
Assuming the company achieves a 5-year growth rate in FCF of 10% per year, and assuming that after the next five years, the company achieves no growth in FCF or 0% growth per year forever:
Discounted Cash Flow Valuation
| Year | FCF $Millions |
| 0 | 1171 |
| 1 | 1288 |
| 2 | 1417 |
| 3 | 1559 |
| 4 | 1714 |
| 5 | 1886 |
| Terminal Value | 28346 |
The firm's future cash flows, discounted at a WACC of 7.32%, give a present value for the entire firm (Debt + Equity) of $26,221 million. If the firm's fair value of debt is estimated at $9600 million, then the fair value of the firm's equity could be $16,621 million. $16,621 million / 475 million outstanding shares is approximately $35 per share and a 20% margin of safety is $28/share.
Sources
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
