McIntire Investment Institute
At the University of Virginia
Long Pitch:
Waste Management
NYSE: WM
Mitchell Slovin and Angus Wilson| 22 March 2012
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McIntire Investment Institute
Overview
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Background
Business Structure
Key Financial Data
Thesis Points
Market Misperception
Catalysts
Risks
Questions
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Founders
• In the 1890s, ancestors of WM’s founders began
hauling garbage in Chicago
• Waste Management was founded in 1894 by
Wayne Huizenga, Dean Buntrock, and Larry
Beck
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Waste Management’s History
• IPO in 1971
• Acquired 133 small-time haulers and generated
$82M in revenue by 1972
• Acquired Service Corporation of America in the
1980’s to become the largest waste hauler in the
country
• Accounting Scandal in 1998
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Waste Management Today
• The largest waste company in North America
• Serves 20 million residential, industrial,
municipal, and commercial customers
throughout North America
• Over 45,000 Employees
• Strong, Experienced Management Team
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Management
• David Steiner
– CEO since 2004
– Elected CFO in 2003
• Steve Preston-Executive Vice President of
Finance, Recycling & Energy Services 2011
– Former President and CEO of Oakleaf Global
Holdings
• James Trevathan - Executive Vice President of
Growth, Innovation & Field Support in 2011
– Former senior vice president of the Southern Group
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Accounting Fraud (1998)
• Management manipulated WM’s financial results
to meet predetermined earnings targets
– Dean L. Buntrock, Phillip B. Rooney, James Koenig,
Herbert Getz, Bruce Tobecksen
• Inflated after-tax profits by about $1.7 billion
• Stock price fell about 33%
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Waste Management Services
• Waste collection services are
necessary regardless of economic
conditions
• The average American produces
about 4.4 pounds of garbage a day
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Collection Landfill and Transfer
• Transfer
– Compaction and transportation of third party waste
• Landfill
– Fees collected from third party users
• Collection
– Fees charged to collect waste
– Commercial and residential
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Wheelabrator
• Waste to energy
– 22,000 tones of waste a day
– Energy powers over 1 million homes per year
– Expected to increase to 2 million by 2020
• Independent power production plants (IPP)
– Wood waste
– Anthracite coal waste (culm)
– Landfill and natural gas
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Recycling
• Residential and commercial recycling
– Fees collected
– Sale of recovered materials and rebates
• Electronic recycling
• Single-stream process
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One bin
Sorted at facility
Convenient
Increases recycling rate
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2011 Revenue by Service (Millions)
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Financial Data Highlights
• Revenues increased by 6.9%, or $863 million for
2011.
• Free cash flow was $1.2 billion for 2011.
• 2010 Internal revenue growth from yield from
the Company’s collection and disposal
operations was 2.3% for 2010.
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20 Year Stock Performance
Price: 35.06
Market Cap: 16.18B
P/E: 17.19
EPS: 2.04
52wk Range: 27.75-39.69
4.63 % Dividend Yield
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Beta: 0.55
Operating Margin: 15.56%
Profit Margin: 7.18%
EBITDA: 3.31B
Enterprise Value: 29.02B
Revenue: $13,378,000
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WM’s Dividend History
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Thesis Points
• Industry Front Runner
• Highly Sustainable Business Model
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Industry Front Runner
• Economies of scale and scope
• Strong barriers to entry
• Only one major competitor
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Economies of Scale and Scope
• Economies of Scale reduce costs
• Interdependent costs  Economies of Scope
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Strong Barriers To Entry
• Enormous capital requirements
• $22,569,000,000 in assets including:
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271 landfills
287 transfer stations
107 material recovery facilities
17 waste to energy facilities
5 independent power production plants.
• Long term contracts
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Only One Major Competitor
• Formed Republic Services, Inc.
– Significantly smaller than Waste Management
– Not as diverse: 75.33% of 2011 revenue was
collection opposed to Waste Management’s 48%
– Weaker brand and marketing
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Waste Management vs. Republic Services
Waste Management Republic Services, Inc.
Market Capitalization
16.10 Billion
11.04 Billion
2011 Revenue
13.38 Billion
8.19 Billion
2011 Net Income
961 Million
589.2 Million
Employees
44000
31000
Landfills
271
191
Transfer Stations
287
242
Recycling Plants
131
86
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Highly Sustainable Business Model
• Economically and environmentally sustainable
• Treat “waste” as a resource
• Use it to create a more efficient business
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Innovative Energy Practices
• 119 landfill-gas-to-energy projects
– Produced 540 megawatts of power in 2009
– Sufficient to power around 400,000 homes
• Convert landfill gas into liquefied natural gas
– Currently produce 13,000 gallons per day
• Over 1000 natural gas vehicles
– Technology reduces fuel burn of every truck in fleet
– Expected to save 9 million gallons of fuel per year
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Recycling
• North America’s largest recycler
• Over 7 million tons of recycling handled in 2009
• Expect to increase managed recyclable material
to 20 million tons per year by 2020
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Landfill Airspace Lifespan
“The weighted average remaining landfill life for all owned or
operated landfills is approximately 48 years when considering
remaining permitted airspace, expansion airspace and projected
annual disposal volume.” -10k
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Value Added Research
• VAR contact was traveling for business
• Management will be updated at a later time
concerning this information
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Market Misperception
• Concern over commodity price fluctuations
• Wheelabrator services are undervalued
– Less exposure to increasing energy costs
– Reduces costs of running business
– Expected to grow significantly
• Diversity of services is not fully appreciated
– Not overly focused on one service
– Various sources of income
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Key Financial Info
• Insert Graphic
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Prices of Recyclable Commodities
• When the Chinese economic growth slowed, demand
declined and prices fell to a historic low in 2009
• Prices have since recovered
• $447 million revenue decrease from 2008 in 2009
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Commodity Price Trend
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Catalysts
• Increasing energy costs
• Growing concern for the environment
• Strategic market position and strategy
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Risk Factors
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Energy prices fluctuations
Commodity price uncertainty
Capital depreciation
Weather and environmental risks
Accounting fraud
Regulation
– Increase operation costs
– Restrict business activities
– Anti-trust allegations similar to 1987
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Recommendation
• Initiate a long purchase of Waste Management,
Inc. valued at three percent of the portfolio
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Questions?
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