Waste Management Shares Already Reflect 2019 Growth Prospects, UBS Says In Move To Sidelines

Shares of Waste Management, Inc. WM have appreciated by around 17 percent year-to-date. 

Although there is high visibility into 2019 earnings and growth is likely to accelerate this year, the stock seems fairly valued, according to UBS.

The Analyst

UBS analyst Jon Windham downgraded Waste Management from Buy to Neutral and raised the price target from $103 to $106.

The Thesis

Waste Management is likely to generate 7.7-percent growth in adjusted EBITDA per share in 2019, up from 7 percent in 2018, Windham said in the Thursday downgrade note. 

This acceleration could be driven by an easing of the recycling headwind witnessed last year as well as some rollover contribution from 2018 acquisitions, the analyst said. 

Although a recycling recovery is unlikely in 2019, the headwind will ease due to more stable pricing and rising contamination fees, he said. Windham projects 2.1-percent pricing growth and 2-percent volume growth.

Solid waste volume and price growth have historically lagged key economic indicators like housing starts and GDP by one to three years, the analyst said. 

The improved indicators provide better visibility into Waste Management’s 2019 performance, according to UBS. 

While growth in both housing starts and GDP are expected to decelerate in 2019, “the inherently defensive characteristics of solid waste volumes” will likely support the stock’s valuation outperformance versus the broader market, Windham said. 

Price Action

Waste Management shares were down 1.45 percent at $102.51 at the time of publication Thursday. 

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