One person's trash is another person's treasure, so they say. One stock that definitely fits the bill, especially after the company's second-quarter earnings report, is Waste Management (WM -0.49%). WM is the nation's largest provider of collection, recycling, and disposal services for residential and industrial consumers, and the business has proven resilient to recession.
Let's take a look at its recent dip and two reasons investors can treasure this stock for years to come.
Disappointing results
WM has shed about 11% of its value over five days recently after its second-quarter earnings disappointed investors. The trash collection and recycling company earned $1.69 per share on sales of $5.4 billion during the second quarter, short of Wall Street estimates calling for $1.83 per share on sales of $5.43 billion.
While the bottom line disappointed, it gives investors an opportunity to buy the small dip. Here's why it's enticing.
Shareholder value
Waste Management is a stable, cash-producing machine, and investors benefit when it returns value to shareholders. The company has consistently increased its dividend over the decades as well as repurchased shares. In fact, during 2023, WM returned $593 million to shareholders via $312 million of share repurchases and $281 million of cash dividends.
To see this value returned on a graph, it should make a perfect "X" when shares outstanding decline at the same time the dividend increases -- and that's exactly what we see below.
WM Dividend data by YCharts.
Investors can expect the company to continue returning this type of value to shareholders. An impressive 75% of WM's revenue is recurring. It also has a highly diversified customer base, with the largest customer generating less than 5% of revenue.
Growth by acquisition
Waste Management made a big move this summer when it agreed to acquire Stericycle, a leader in medical waste services, for a whopping $7.2 billion. While some investors believe the moved added uncertainty to the company's future, it should pay off. Stericycle provides a complementary business in the healthcare market, a sector with attractive near- and long-term growth.
The move will leverage WM's expertise in logistics, collection, and technology, which is expected to deliver more than $125 million in projected annual synergies. Further, the acquisition is expected to be accretive to WM's earnings and cash flow within a year of closing, which is anticipated to be during the fourth quarter.
Ultimately, management believes this acquisition will enhance WM's cash flow growth and further support its commitment to growing and returning value to shareholders.
What it all means
Despite WM shedding some value after its second-quarter earnings report, the truth is that the drop seems like an overreaction. WM grew its revenue by 5.5% during the second quarter, and its effort to reduce costs helped drive its adjusted operating EBITDA 10.3% higher. Margins expanded 130 basis points to 30% for the first time ever. Further, the company raised its full-year outlook for adjusted operating EBITDA and free cash flow by $100 million.
Ultimately, the second quarter wasn't as bad as it seems. It offers investors a slight dip during which to buy a company that is focused on returning massive value to shareholders through buybacks and dividends as well as growth through acquisitions. This trash stock could really end up being a treasure in many long-term portfolios.
