Offshore

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Dimitry Nakhla | Babylon Capital®
A quality valuation analysis on $WM *🧘🏽‍♂️

•NTM P/E Ratio: 24.97x
•5-Year Mean: 27.63x

•NTM FCF Yield: 4.38%
•5-Year Mean: 3.13%

As you can see, $WM appears to be trading below fair value

Going forward, investors can receive ~10% MORE in EPS & ~40% MORE FCF per share 🧠***

Before we get into valuation, let’s take a look at why $WM is a good business

BALANCE SHEET🆗
•Cash & Short-Term Inv: $175M
•Accounts Receivable: $3.39B
•Long-Term Debt: $21.19B

$WM has an ok balance sheet, an A- S&P Credit Rating, & 6.58x FFO Interest Coverage — this kind of balance sheet is common for the sector

RETURN ON CAPITAL🆗
•2020: 10%
•2021: 13%
•2022: 14%
•2023: 15%
•2024: 12%
•LTM: 13%

$WM maintains decent returns on capital

REVENUES✅
•2020: $15.22B
•2025E: $25.28B
•CAGR: 10.68%

FREE CASH FLOW✅
•2020: $1.77B
•2025E: $2.91B
•CAGR: 10.45%

NORMALIZED EPS✅
•2020: $4.03
•2025E: $7.50
•CAGR: 13.22%

SHARE BUYBACKS✅
•2015 Shares Outstanding: 455.90M
•LTM Shares Outstanding: 404.00M

By reducing its shares outstanding by 11%, $WM increased its EPS by 12% (assuming 0 growth)

MARGINS🆗
•LTM Gross Margins: 40.0%
•LTM Operating Margins: 18.3%
•LTM Net Income Margins: 10.3%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~10% MORE in EPS & ~40% MORE FCF per share

Using Benjamin Graham’s 2G rule of thumb, $WM has to grow earnings at a 12.49% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2026 - 2028 EPS growth over the next few years to be lower than the (12.49%) required growth rate:

2025E: $7.50 (4% YoY) *FY Dec

2026E: $8.34 (11% YoY)
2027E: $9.47 (13% YoY)
2028E: $10.12 (7% YoY)

$WM has an excellent track record of meeting analyst estimates ~2 years out, so let’s assume $WM ends 2028 with $10.12 in EPS & see its CAGR potential assuming different multiples

27x P/E: $273💵 … ~11.9% CAGR

26x P/E: $263💵 … ~10.6% CAGR

25x P/E: $253💵 … ~9.3% CAGR

24x P/E: $243💵 … ~7.9% CAGR

23x P/E: $233💵 … ~6.5% CAGR

22x P/E: $223💵 … ~5.0% CAGR

As you can see, $WM appears to have attractive return potential if we assume a 27x earnings multiple

Given its quality & more recent historical averages, a >27x multiple appears reasonable for $WM

However, $WM commonly traded for ~23x from 2015-2019, a period where revenue, EPS, & FCF grew at a 4.5%, 13.9%, & 9.9% CAGR, respectively

$WM future growth estimates aren’t as strong as they used to be so it’s possible to see its multiple compress further, leaving us with minimal margin of safety at 27x

Today, at $200💵 $WM appears to be a fair consideration for investment

$WM could appeal to investors looking for a stable dividend grower (or offset tech correlation) that requires little to no oversight, although it will most likely compound at a 7% - 9% CAGR from here

Those whose primary objective is total return, at $175💵 $WM offers a stronger margin of safety, supporting an ~11% CAGR while assuming a 23x multiple
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𝐓𝐡𝐢𝐬 𝐜𝐨𝐧𝐭𝐞𝐧𝐭 𝐢𝐬 𝐩𝐫𝐨𝐯𝐢𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐚𝐧𝐝 𝐞𝐝𝐮𝐜𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐝𝐨𝐞𝐬 𝐧𝐨𝐭 𝐜𝐨𝐧𝐬𝐭𝐢𝐭𝐮𝐭𝐞 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞, 𝐚𝐧 𝐨𝐟𝐟𝐞𝐫, 𝐨𝐫 𝐚 𝐬𝐨𝐥𝐢𝐜𝐢𝐭𝐚𝐭𝐢𝐨𝐧 𝐭𝐨 𝐛𝐮𝐲 𝐨𝐫 𝐬𝐞𝐥𝐥 𝐚𝐧𝐲 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐲.

𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐨𝐥𝐝 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝. 𝐀𝐧𝐲 𝐨𝐩𝐢𝐧𝐢𝐨𝐧𝐬 𝐞𝐱𝐩𝐫𝐞𝐬𝐬𝐞𝐝 𝐚𝐫𝐞 𝐚𝐬 𝐨𝐟 𝐭𝐡𝐞 𝐝𝐚𝐭𝐞 𝐨𝐟 𝐩𝐮𝐛𝐥𝐢𝐜𝐚𝐭𝐢𝐨𝐧 𝐚𝐧𝐝 𝐬𝐮𝐛𝐣𝐞𝐜𝐭 𝐭𝐨 𝐜𝐡𝐚𝐧𝐠𝐞 𝐰𝐢𝐭𝐡𝐨𝐮𝐭 𝐧𝐨𝐭𝐢𝐜𝐞.

𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐚𝐜𝐜𝐮𝐫𝐚𝐜𝐲 𝐨𝐫 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐝𝐨�[...]

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