Waste Management Inc. (WMI)

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Waste Management Inc.(WMI)
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What Exactly Does Waste Management do?

• Waste Collection
• The leading provider of comprehensive waste and
  environmental services in North America
  According to their 2007 annual report, Waste
  Management collects approximately 74 million tons
  of solid waste a year from nearly 20 million
  residential, municipal, commercial, and
  industrial customers in the United States,
  Canada, and Puerto Rico. We see them every day
  here at Colby and around coast to coast.
• Recycling
• Waste Management is the largest provider of
  comprehensive recycling services in North
  America, managing nearly 8 million tons of
  recyclable material annually, including paper,
  cardboard,glass, plastics, metals, and
  electronics
• Producing Energy
• More than 20 years ago, Waste Management
  realized that garbage was a potential resource
  for producing clean, renewable energy, and began
  to develop the methodology to harness it. One of
  the sources is methane, a natural byproduct of
  decomposing waste in landfills. This gas is
  collected and used to generate electricity or
  piped offsite to industrial customers for use as
  an alternative fuel source. Over the last two
  decades, Waste Management has participated in
  more than 100 beneficial-use landfill gas
  projects for businesses and public utilities.

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Methane burns as a natural gas

• Hands on research
• I was recently able to visit the newly opened
  Norridgewock waste to methane collection
  operation at the landfill. Dave Jarvis, explained
  to me about this new program that had just
  recently received authorization to begin
  collecting methane.

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But, How does a landfill work?

• Methane Collection System
• Bacteria in the landfill breaks down the trash in
  the absence of oxygen (anaerobic) because the
  landfill is airtight. A byproduct of this
  anaerobic breakdown is landfill gas, which
  contains approximately 50 percent methane and 50
  percent carbon dioxide with small amounts of
  nitrogen and oxygen. This presents a hazard
  because the methane can explode and/or burn. So,
  the landfill gas must be removed. To do this, a
  series of pipes are embedded within the landfill
  to collect the gas. In some landfills, this gas
  is vented or burned.

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• Collection vents and Methane flares surrounded
  the landfill
• This landfill will produce energy for enough to
  power twice of all of Colbys energy needs for
  20 years.

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Green

• With Over 100 of these Waste to Energy
  installations and increased energy prices, Waste
  Management is poised to profit not only from
  trucking and managing waste but also from the
  byproducts the waste produces.
• The collection facility costs only about 3-4
  million dollars to install.

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Outside the Box

• Management has devoted a small amount of capital
  to niche opportunities outside of the solid waste
  market, although these businesses appear to have
  characteristics that mirror the solid waste model
  and therefore carry some synergies. WMI already
  provides portable restroom facilities to
  municipalities and commercial customers as well
  as street and parking lot sweeping services.
  During 2007, the company began offering portable
  self storage services, which may allow WMI to
  more efficiently utilize excess capacity across
  its transfer station network. Customer storage
  containers could be housed within transfer
  stations and the delivery of those containers
  would be similar to the logistics around the roll
  off business.

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Room for Growth
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Some positives, some negatives

• But wait, WMI had negative revenue growth last
  year.
• Yes, but then we must look at how profit, margins
  and EBIDA has improved and COGS have decreased
  over time.

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Competition
Revenues
2006 2007 2008 2009est
WMI 13363 13270.16 13548.4 14099.6
RSG 3070.6 3175 3311.8 349.8
AW 6028.8 6097.59 6286.9 6489.4
WCN 824.35 995.77 1053.9 1119.2
WWIN 305.11 327.55 361.2 368.3
WSII 396.12 487.28 535.2 573.7
CWST 515.17 546.99 576.89 599.2
WCAA 149.5 183.72 219.7 265

• Republic Services (RSG)
• Allied Waste Ind. (AW)
• Waste Connection (WCN)
• Waste Industries (WWIN)
• Waste Services (WSII)
• Casella Waste (CWST)
• WCA Waste Corp (WCAA)

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WMI Clearly the Largest Player

• Republic Services (RSG)
• Allied Waste Ind. (AW)
• Waste Connection (WCN)
• Waste Industries (WWIN)
• Waste Services (WSII)
• Casella Waste (CWST)
• WCA Waste Corp (WCAA)

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AW Fundamentalsas largest competitor

• .

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• AW may have higher margins, but generated less
  than half the revenue of WMI.
• Notables Waste Management Inc. WMI 34.82,
  -0.04, -0.1) recently reported fourth-quarter
  net income rose 26 on 2.4 higher revenue.
  Earnings were 61 cents a share against 46 cents a
  year earlier. Revenue rose to 3.36 billion from
  3.28 billion. Beating estimates surveyed by
  Thomson Financial expecting 51 cents on revenue
  of 3.31 billion

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Solid Metrics

• This company has reacted well even in a softening
  economy, and even though it has had a recent run
  up because, it beat earnings estimates, the
  valuations for WMI remain.
• It is important to note that this stock is not
  very volatile, and so to yield good returns for
  this stock we should purchase it around the
  28-29 mark.

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Risks to call

• Overall Economic Conditions
• Less consumption means less waste to manage
• Much of this speculation has been priced into
  stock, plus who is really consuming less these
  days?
• Labor disputes
• There has been no word of any disagreements, and
  WMI is quoted as having a happy workforce, but
  labor disruptions would be detrimental to company

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WMI