Urban recycling is scaling up - Todays weekly stock deep dive.

I want to talk to you about a show I enjoy watching - The Marvelous Mrs Maisel. Amy-Sherman Palladino is the producer who’s also made another show I really love: The Gilmore Girls. The small town romance, the english literature references, the takes on Russian authors, arts and culture, witty repartees - a cool show all in all. I have been frequently judged by my wife about that particular choice of show. Oh you’re not judging I take? Perfect.

Lost my train of thought a bit there, so back to Mrs. Maisel. In episode 4 of Season 5, she stars in a theatrical about Private demolition and waste disposal. It’s a bit of a nothing subplot but talks about the importance of waste management and if ignored how it can be detrimental to a city. Ironically enough, in a Simpsonesque coincidence New York just admitted to a big rat problem they are facing right now. According to the city, the sanitation and waste disposal have not been well managed and they’re now making big changes to rectify this. Waste management in the US is a $208 billion problem and is expected to get to a market cap of $230 billion in 2027 while the global market size is expected to hit $2.5 trillion by 2030. This is where the company we want to talk to you about today comes in - Waste Management Inc. It’s the largest waste disposal company in the U.S and here’s how it’s story goes.

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In 1893, Harm Huizenga, a Dutch immigrant to the United States began collecting garbage at a measly $1.25/cart in Chicago. His grandson, Wayne Huizenga unlike many other third generation kids thought waste disposal was a good problem to solve. In 1968 he founded Waste Management Inc with Dean Buntrock and Larry Beck. In the 1970s, there was a rise in environment friendly approach towards waste disposal. Waste Management Inc was able to successfully capitalize on this market need as they began to address complex specialized waste disposal as well.

They had their fair share of issues from 1970s through 1990s as company executives were found to be underreporting expenses and failed to establish sufficient reserves to pay for taxes. A new CEO took charge of the company in 1997 and ordered an immediate review of the company's accounting practices. The company had recalibrate their earnings. The company restated their earnings from 1992-1997 by about $1.7billion; making it the largest restatement in history at the time.

Today, Waste Management (WM) is the largest waste management company in the United States. They have around 42,000 employees, 26,000 collection transfer vehicles, 346 transfer stations, 293 active landfill disposal sites, 146 recycling plants, and six independent power production plants. WM provides waste management services, including collection, disposal, recycling, and composting.

WM is also a leader in sustainability. The company has several initiatives in place to reduce its environmental impact, such as using renewable energy, investing in new technologies, and promoting recycling. In 1971, WM went public, and by 1972, the company had made 133 acquisitions with $82 million in revenue. It had 60,000 commercial and industrial accounts and 600,000 residential customers in 19 states and the provinces of Ontario and Quebec. In the 1980s, WM acquired Service Corporation of America (SCA) to become the largest waste hauler in the country.

The stock for this company has returned an average of 15.1% annually since its inception. This company is one of the examples of a business done right . You don’t need to find a company making some high-end tech gadgets or fancy cars to get consistent returns on your stock investments.

Industry Outlook

The industry outlook for the recyclables industry is positive. The global market for recyclables is expected to grow at a compound annual growth rate (CAGR) of 4.8% from 2021 to 2030 and is expected to hit $88 billion.

Here are some fundamentals for the company:

1. WM's debt-to-equity ratio is currently 1.1, which is below the industry average of 1.5.

2. The company's interest coverage ratio is also strong at 10.7, which means that it has more than enough earnings to cover its interest payments. WM has a strong track record of paying down its debt.

3. Over the past five years, the company has reduced its debt by $1.5 billion. This has been achieved through a combination of organic growth and acquisitions.

Here’s how the last 2 years look like:

The upside:

Based on the overall positive outlook for the industry along with WM's good performance, the growth outlook for the company looks promising over the medium to long term. The company is well positioned to benefit from the growing demand for waste management services, as well as the increasing focus on sustainability.

As the world becomes more focused on sustainability, WM is well-positioned to benefit. The company has the resources, the expertise, and the commitment to sustainability to continue to grow and succeed in the years to come.

Here are some of the factors that represent bullish scenario for WM's continued growth:

• Increasing population growth: As the world's population grows, so does the amount of waste that is generated. WM is well positioned to benefit from this growth, as it has the capacity to handle large volumes of waste.

• Economic growth: As economies grow, so does the amount of waste that is generated. WM is well positioned to benefit from this growth, as it has the resources to invest in new technologies and expand its operations. Increased waste is expected in urban centers around the world.

• Government regulations: Governments around the world are enacting stricter regulations for recycling, which is driving the demand for waste management services. WM is also well positioned to benefit from this trend.

• Sustainability: There is a growing focus on sustainability around the world, and this is driving the demand for waste management services. Waste Management will continue to benefit from this trend, as it is a already a leader in sustainability.

• Biogas boom: There is also a strong push for greenhouse gas emissions management. These would be then used as methane gas for powering heavy vehicles.

• The company has a strong record of paying down its debt. The company has a policy of keeping its debt-to-EBITDA ratio below 2.5. This helps to ensure that the company has the financial flexibility to weather economic downturns.

The downside:

Given the overall positive outlook for the industry, there may be some short-term challenges that present a bearish scenario for the company in the near future.

• Economic conditions - Weak economic conditions could lead to a decrease in public consumption and thus result less in demand for Waste Management's services. This could reduce revenue and profits.

• Sustained Higher Interest Rates – This may hamper WM’s ability to borrow to invest in improving its technologies and new fleet.

• Competition from other waste management companies - WM faces competition from other waste management companies, both large and small. This competition could drive down prices or make it more difficult to acquire new customers.

• Regulations - WM is subject to a variety of regulations, both federal and state. These regulations could increase costs or make it more difficult to operate the business.

• Changes in the waste stream - The composition of the waste stream can change over time, which could impact WM's business. For example, if there is a decrease in the amount of waste that is recyclable, this could reduce revenue for WM’s recycling business.

• Natural disasters - Natural disasters, such as hurricanes, floods, and earthquakes, could damage WM's landfill facilities or equipment, which could disrupt operations and lead to costs.

• In addition to these headwinds, WM also faces a few other challenges, such as the aging of its fleet of vehicles and the continuing need to invest in new technologies to improve its operations. These challenges could add up costs and weigh on the company's earnings and growth in the future.

Overall Waste Management Inc is going to be a play a big role in solving recycling, disposal handling problems as they grow across the country.