Intrinsic value of Waste Management - WM

Previous Close

$76.20

  Intrinsic Value

$35.06

stock screener

  Rating & Target

str. sell

-54%

  Value-price divergence*

+62%

Previous close

$76.20

 
Intrinsic value

$35.06

 
Up/down potential

-54%

 
Rating

str. sell

 
Value-price divergence*

+62%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of WM stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 33.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  5.00
  8.30
  7.97
  7.67
  7.41
  7.17
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.75
  5.68
  5.61
  5.55
  5.50
  5.45
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
  5.19
  5.17
  5.16
Revenue, $m
  13,609
  14,739
  15,913
  17,134
  18,403
  19,722
  21,092
  22,517
  23,998
  25,539
  27,142
  28,812
  30,550
  32,363
  34,252
  36,224
  38,281
  40,429
  42,673
  45,018
  47,469
  50,033
  52,716
  55,523
  58,461
  61,538
  64,761
  68,137
  71,675
  75,382
  79,269
Variable operating expenses, $m
 
  12,992
  13,978
  15,003
  16,068
  17,175
  18,325
  19,520
  20,764
  22,057
  23,403
  24,182
  25,642
  27,163
  28,749
  30,404
  32,130
  33,933
  35,817
  37,785
  39,843
  41,995
  44,246
  46,602
  49,068
  51,651
  54,356
  57,190
  60,159
  63,271
  66,533
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  11,317
  12,992
  13,978
  15,003
  16,068
  17,175
  18,325
  19,520
  20,764
  22,057
  23,403
  24,182
  25,642
  27,163
  28,749
  30,404
  32,130
  33,933
  35,817
  37,785
  39,843
  41,995
  44,246
  46,602
  49,068
  51,651
  54,356
  57,190
  60,159
  63,271
  66,533
Operating income, $m
  2,292
  1,747
  1,935
  2,131
  2,335
  2,547
  2,767
  2,996
  3,234
  3,482
  3,739
  4,629
  4,908
  5,200
  5,503
  5,820
  6,151
  6,496
  6,856
  7,233
  7,627
  8,039
  8,470
  8,921
  9,393
  9,887
  10,405
  10,947
  11,516
  12,112
  12,736
EBITDA, $m
  3,593
  3,284
  3,546
  3,818
  4,101
  4,395
  4,700
  5,017
  5,348
  5,691
  6,048
  6,420
  6,808
  7,211
  7,633
  8,072
  8,530
  9,009
  9,509
  10,031
  10,578
  11,149
  11,747
  12,372
  13,027
  13,713
  14,431
  15,183
  15,971
  16,798
  17,664
Interest expense (income), $m
  375
  380
  434
  489
  546
  606
  667
  732
  798
  868
  940
  1,015
  1,093
  1,175
  1,260
  1,348
  1,440
  1,537
  1,637
  1,742
  1,852
  1,967
  2,087
  2,213
  2,344
  2,482
  2,626
  2,777
  2,935
  3,101
  3,275
Earnings before tax, $m
  1,822
  1,366
  1,501
  1,642
  1,789
  1,942
  2,100
  2,265
  2,436
  2,614
  2,799
  3,614
  3,815
  4,025
  4,244
  4,472
  4,710
  4,959
  5,219
  5,491
  5,775
  6,072
  6,383
  6,708
  7,049
  7,405
  7,779
  8,170
  8,581
  9,011
  9,461
Tax expense, $m
  642
  369
  405
  443
  483
  524
  567
  611
  658
  706
  756
  976
  1,030
  1,087
  1,146
  1,207
  1,272
  1,339
  1,409
  1,482
  1,559
  1,639
  1,723
  1,811
  1,903
  1,999
  2,100
  2,206
  2,317
  2,433
  2,555
Net income, $m
  1,182
  997
  1,096
  1,199
  1,306
  1,417
  1,533
  1,653
  1,778
  1,908
  2,044
  2,638
  2,785
  2,938
  3,098
  3,265
  3,438
  3,620
  3,810
  4,008
  4,215
  4,432
  4,659
  4,897
  5,145
  5,406
  5,679
  5,964
  6,264
  6,578
  6,907

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  32
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  20,859
  22,571
  24,369
  26,239
  28,182
  30,202
  32,300
  34,482
  36,750
  39,110
  41,565
  44,122
  46,785
  49,560
  52,454
  55,472
  58,623
  61,913
  65,349
  68,940
  72,694
  76,621
  80,729
  85,027
  89,527
  94,239
  99,175
  104,345
  109,762
  115,440
  121,391
Adjusted assets (=assets-cash), $m
  20,827
  22,571
  24,369
  26,239
  28,182
  30,202
  32,300
  34,482
  36,750
  39,110
  41,565
  44,122
  46,785
  49,560
  52,454
  55,472
  58,623
  61,913
  65,349
  68,940
  72,694
  76,621
  80,729
  85,027
  89,527
  94,239
  99,175
  104,345
  109,762
  115,440
  121,391
Revenue / Adjusted assets
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
Average production assets, $m
  11,342
  12,277
  13,256
  14,273
  15,330
  16,428
  17,570
  18,756
  19,990
  21,274
  22,609
  24,000
  25,449
  26,958
  28,532
  30,174
  31,888
  33,677
  35,547
  37,500
  39,542
  41,678
  43,912
  46,251
  48,698
  51,261
  53,946
  56,758
  59,705
  62,793
  66,031
Working capital, $m
  -418
  -29
  -32
  -34
  -37
  -39
  -42
  -45
  -48
  -51
  -54
  -58
  -61
  -65
  -69
  -72
  -77
  -81
  -85
  -90
  -95
  -100
  -105
  -111
  -117
  -123
  -130
  -136
  -143
  -151
  -159
Total debt, $m
  9,310
  10,586
  11,928
  13,322
  14,772
  16,279
  17,844
  19,471
  21,164
  22,924
  24,756
  26,663
  28,649
  30,720
  32,879
  35,130
  37,481
  39,935
  42,498
  45,177
  47,978
  50,907
  53,971
  57,178
  60,535
  64,051
  67,732
  71,589
  75,631
  79,866
  84,306
Total liabilities, $m
  15,562
  16,838
  18,180
  19,574
  21,024
  22,531
  24,096
  25,723
  27,416
  29,176
  31,008
  32,915
  34,901
  36,972
  39,131
  41,382
  43,733
  46,187
  48,750
  51,429
  54,230
  57,159
  60,223
  63,430
  66,787
  70,303
  73,984
  77,841
  81,883
  86,118
  90,558
Total equity, $m
  5,297
  5,733
  6,190
  6,665
  7,158
  7,671
  8,204
  8,758
  9,335
  9,934
  10,558
  11,207
  11,883
  12,588
  13,323
  14,090
  14,890
  15,726
  16,599
  17,511
  18,464
  19,462
  20,505
  21,597
  22,740
  23,937
  25,190
  26,504
  27,880
  29,322
  30,833
Total liabilities and equity, $m
  20,859
  22,571
  24,370
  26,239
  28,182
  30,202
  32,300
  34,481
  36,751
  39,110
  41,566
  44,122
  46,784
  49,560
  52,454
  55,472
  58,623
  61,913
  65,349
  68,940
  72,694
  76,621
  80,728
  85,027
  89,527
  94,240
  99,174
  104,345
  109,763
  115,440
  121,391
Debt-to-equity ratio
  1.758
  1.850
  1.930
  2.000
  2.060
  2.120
  2.170
  2.220
  2.270
  2.310
  2.340
  2.380
  2.410
  2.440
  2.470
  2.490
  2.520
  2.540
  2.560
  2.580
  2.600
  2.620
  2.630
  2.650
  2.660
  2.680
  2.690
  2.700
  2.710
  2.720
  2.730
Adjusted equity ratio
  0.253
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,182
  997
  1,096
  1,199
  1,306
  1,417
  1,533
  1,653
  1,778
  1,908
  2,044
  2,638
  2,785
  2,938
  3,098
  3,265
  3,438
  3,620
  3,810
  4,008
  4,215
  4,432
  4,659
  4,897
  5,145
  5,406
  5,679
  5,964
  6,264
  6,578
  6,907
Depreciation, amort., depletion, $m
  1,301
  1,538
  1,611
  1,687
  1,766
  1,847
  1,933
  2,021
  2,113
  2,209
  2,309
  1,791
  1,899
  2,012
  2,129
  2,252
  2,380
  2,513
  2,653
  2,799
  2,951
  3,110
  3,277
  3,452
  3,634
  3,825
  4,026
  4,236
  4,456
  4,686
  4,928
Funds from operations, $m
  3,037
  2,535
  2,707
  2,886
  3,072
  3,265
  3,466
  3,674
  3,891
  4,117
  4,352
  4,429
  4,684
  4,950
  5,227
  5,516
  5,818
  6,133
  6,462
  6,807
  7,166
  7,543
  7,936
  8,348
  8,780
  9,231
  9,704
  10,200
  10,720
  11,264
  11,835
Change in working capital, $m
  77
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
Cash from operations, $m
  2,960
  2,537
  2,709
  2,888
  3,074
  3,267
  3,468
  3,677
  3,894
  4,120
  4,356
  4,433
  4,688
  4,954
  5,231
  5,520
  5,822
  6,138
  6,467
  6,811
  7,171
  7,548
  7,942
  8,354
  8,786
  9,238
  9,711
  10,207
  10,727
  11,271
  11,842
Maintenance CAPEX, $m
  0
  -846
  -916
  -989
  -1,065
  -1,144
  -1,226
  -1,311
  -1,400
  -1,492
  -1,588
  -1,687
  -1,791
  -1,899
  -2,012
  -2,129
  -2,252
  -2,380
  -2,513
  -2,653
  -2,799
  -2,951
  -3,110
  -3,277
  -3,452
  -3,634
  -3,825
  -4,026
  -4,236
  -4,456
  -4,686
New CAPEX, $m
  -1,339
  -936
  -978
  -1,017
  -1,057
  -1,098
  -1,142
  -1,187
  -1,234
  -1,283
  -1,336
  -1,391
  -1,449
  -1,510
  -1,574
  -1,642
  -1,714
  -1,789
  -1,869
  -1,953
  -2,042
  -2,136
  -2,234
  -2,338
  -2,448
  -2,563
  -2,685
  -2,812
  -2,947
  -3,088
  -3,237
Cash from investing activities, $m
  -1,932
  -1,782
  -1,894
  -2,006
  -2,122
  -2,242
  -2,368
  -2,498
  -2,634
  -2,775
  -2,924
  -3,078
  -3,240
  -3,409
  -3,586
  -3,771
  -3,966
  -4,169
  -4,382
  -4,606
  -4,841
  -5,087
  -5,344
  -5,615
  -5,900
  -6,197
  -6,510
  -6,838
  -7,183
  -7,544
  -7,923
Free cash flow, $m
  1,028
  755
  814
  882
  952
  1,025
  1,101
  1,179
  1,261
  1,345
  1,432
  1,355
  1,448
  1,545
  1,645
  1,749
  1,857
  1,968
  2,085
  2,205
  2,331
  2,461
  2,597
  2,739
  2,886
  3,040
  3,201
  3,369
  3,544
  3,727
  3,919
Issuance/(repayment) of debt, $m
  375
  1,308
  1,342
  1,395
  1,450
  1,506
  1,566
  1,627
  1,692
  1,760
  1,832
  1,907
  1,987
  2,070
  2,159
  2,252
  2,350
  2,454
  2,564
  2,679
  2,801
  2,929
  3,064
  3,207
  3,357
  3,515
  3,682
  3,857
  4,041
  4,236
  4,440
Issuance/(repurchase) of shares, $m
  -662
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -309
  1,308
  1,342
  1,395
  1,450
  1,506
  1,566
  1,627
  1,692
  1,760
  1,832
  1,907
  1,987
  2,070
  2,159
  2,252
  2,350
  2,454
  2,564
  2,679
  2,801
  2,929
  3,064
  3,207
  3,357
  3,515
  3,682
  3,857
  4,041
  4,236
  4,440
Total cash flow (excl. dividends), $m
  719
  2,063
  2,156
  2,277
  2,402
  2,531
  2,666
  2,807
  2,953
  3,105
  3,264
  3,262
  3,435
  3,615
  3,804
  4,001
  4,207
  4,423
  4,648
  4,884
  5,131
  5,390
  5,661
  5,945
  6,243
  6,555
  6,883
  7,226
  7,586
  7,963
  8,359
Retained Cash Flow (-), $m
  48
  -436
  -457
  -475
  -494
  -513
  -533
  -554
  -576
  -599
  -624
  -649
  -676
  -705
  -735
  -767
  -800
  -836
  -873
  -912
  -954
  -997
  -1,043
  -1,092
  -1,143
  -1,197
  -1,254
  -1,313
  -1,376
  -1,442
  -1,512
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  1,627
  1,699
  1,802
  1,908
  2,019
  2,133
  2,253
  2,377
  2,506
  2,640
  2,613
  2,758
  2,910
  3,069
  3,234
  3,407
  3,587
  3,775
  3,972
  4,178
  4,393
  4,618
  4,854
  5,100
  5,359
  5,629
  5,912
  6,209
  6,521
  6,847
Discount rate, %
 
  8.20
  8.61
  9.04
  9.49
  9.97
  10.47
  10.99
  11.54
  12.12
  12.72
  13.36
  14.02
  14.73
  15.46
  16.24
  17.05
  17.90
  18.79
  19.73
  20.72
  21.76
  22.84
  23.99
  25.19
  26.45
  27.77
  29.16
  30.61
  32.15
  33.75
PV of cash for distribution, $m
 
  1,504
  1,441
  1,390
  1,328
  1,255
  1,174
  1,086
  992
  895
  797
  658
  571
  488
  410
  339
  275
  218
  170
  130
  97
  70
  50
  35
  23
  15
  10
  6
  4
  2
  1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Waste Management, Inc., through its subsidiaries, provides waste management environmental services to residential, commercial, industrial, and municipal customers in North America. It offers collection services, including picking up and transporting waste and recyclable materials from where it was generated to a transfer station, material recovery facility (MRF), or disposal site; and owns, develops, and operates landfill gas-to-energy facilities in the United States, as well as owns and operates transfer stations. As of December 31, 2016, the company owned or operated 95 MRFs; and 243 solid waste landfills and 5 secure hazardous waste landfills, as well as 310 transfer stations. It also provides materials processing and commodities recycling services; recycling brokerage services that comprise managing the marketing of recyclable materials for third parties; and other strategic business solutions. In addition, the company offers construction and remediation services; services associated with the disposal of fly ash, and residue generated from the combustion of coal and other fuel stocks; in-plant services, such as full-service waste management solutions and consulting services; and specialized disposal services for oil and gas exploration and production operations. Further, it provides portable self-storage, long distance moving, and fluorescent lamp recycling services; portable restroom services under the Port-o-Let name; and street and parking lot sweeping services, as well as holds interests in oil and gas producing properties. The company was formerly known as USA Waste Services, Inc. and changed its name to Waste Management, Inc. in 1998. Waste Management, Inc. was incorporated in 1987 and is headquartered in Houston, Texas.

FINANCIAL RATIOS  of  Waste Management (WM)

Valuation Ratios
P/E Ratio 28.3
Price to Sales 2.5
Price to Book 6.3
Price to Tangible Book
Price to Cash Flow 11.3
Price to Free Cash Flow 20.7
Growth Rates
Sales Growth Rate 5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 8.6%
Cap. Spend. - 3 Yr. Gr. Rate 1%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 167.9%
Total Debt to Equity 175.8%
Interest Coverage 6
Management Effectiveness
Return On Assets 6.9%
Ret/ On Assets - 3 Yr. Avg. 9.1%
Return On Total Capital 8.2%
Ret/ On T. Cap. - 3 Yr. Avg. 10.1%
Return On Equity 22.2%
Return On Equity - 3 Yr. Avg. 26.6%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 45.6%
Gross Margin - 3 Yr. Avg. 44.7%
EBITDA Margin 25.7%
EBITDA Margin - 3 Yr. Avg. 23.8%
Operating Margin 16.8%
Oper. Margin - 3 Yr. Avg. 14.9%
Pre-Tax Margin 13.4%
Pre-Tax Margin - 3 Yr. Avg. 11.4%
Net Profit Margin 8.7%
Net Profit Margin - 3 Yr. Avg. 7.9%
Effective Tax Rate 35.2%
Eff/ Tax Rate - 3 Yr. Avg. 29.3%
Payout Ratio 61.4%

WM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WM stock intrinsic value calculation we used $13609 million for the last fiscal year's total revenue generated by Waste Management. The default revenue input number comes from 2016 income statement of Waste Management. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our WM stock valuation model: a) initial revenue growth rate of 8.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 8.2%, whose default value for WM is calculated based on our internal credit rating of Waste Management, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Waste Management.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of WM stock the variable cost ratio is equal to 88.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for WM stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.1% for Waste Management.

Corporate tax rate of 27% is the nominal tax rate for Waste Management. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the WM stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for WM are equal to 83.3%.

Life of production assets of 13.4 years is the average useful life of capital assets used in Waste Management operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for WM is equal to -0.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $5297 million for Waste Management - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 440.234 million for Waste Management is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Waste Management at the current share price and the inputted number of shares is $33.5 billion.

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COMPANY NEWS

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▶ Waste Management Announces Cash Dividend   [May-11-17 11:09PM  Business Wire]
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▶ Why trash is a good proxy for the overall economy   [Apr-26-17 04:47PM  Yahoo Finance Video]
▶ Waste Management meets 1Q profit forecasts   [07:26AM  Associated Press]
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Financial statements of WM
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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