Running Waste Management (WM) Through the Ben Graham Analysis

Waste Management does not have the profile of a defensive investment based on the requirements of Ben Graham. The Environmental Services firm may nonetheless be of interest to more risk-oriented investors who have a solid thesis on the company's future growth. At Market Inference, we remain agnostic as to such further developments, and prefer to use a company's past track record as the bellwether for future potential gains.

Waste Management Is Probably Overvalued

Graham devised the below equation to give investors a quick way of determining whether a stock is trading at a fair multiple of its earnings and its assets:

√(22.5 * 6 year average earnings per share (4.31) * 6 year average book value per share (17.065) = $43.71

At today's price of $155.58 per share, Waste Management is now trading 255.9% above the maximum price that Graham would have wanted to pay for the stock.

Even though the stock does not trade at an attractive multiple, it might still meet some of the other criteria for quality stocks that Graham listed in Chapter 14 of The Intelligent Investor.

Impressive Revenues, Consistent Profitability, and a Growing Dividend Imply Value

Waste Management’s average sales revenue over the last 6 years has been $25.38 Billion, so by Graham’s standards the stock has sufficient revenues to make it worthy of investment. When published in 1972, Graham’s threshold was $100 million in average sales, which would be the equivalent of around a half million dollars today.

Ben Graham believed that a margin of safety could be obtained by investing only in companies with consistently positive retained earnings. Retained earnings represent the cumulative net earnings or (deficit) left to equity holders after dividends have been paid out. Waste Management had positive retained earnings from 2008 to 2022 with an average of $8.3 Billion over this period.

Ben Graham would also require a cumulative growth of Earnings Per Share of at least 30% over the last ten years.To determine Waste Management's EPS growth over time, we will average out its EPS for 2007, 2008, and 2009, which were $2.23, $2.19, and $0.64 respectively. This gives us an average of $1.69 for the period of 2007 to 2009. Next, we compare this value with the average EPS reported in 2020, 2021, and 2022, which were $3.52, $4.29, and $5.39, for an average of $4.40. Now we see that Waste Management's EPS growth was 160.36% during this period, which satisfies Ben Graham's requirement.

Negative Current Asset to Liabilities Balance and Not Enough Current Assets to Cover Current Liabilities

Graham sought companies with extremely low debt levels compared to their assets. For one, he expected their current ratio to be over 2 and their long term debt to net current asset ratio to be near, or ideally under, under 1. Waste Management fails on both counts with a current ratio of 0.8 and a debt to net current asset ratio of -0.7.


According to Graham's analysis, Waste Management is likely a company of average quality, which does not offer a significant enough margin of safety for a risk averse investor.

2018-02-15 2019-02-14 2020-02-13 2021-02-22 2022-02-15 2023-02-07
Revenue (MM) $14,485 $14,914 $15,455 $15,218 $17,931 $19,698
Gross Margins 38.0% 38.0% 39.0% 39.0% 38.0% 38.0%
Operating Margins 18% 18% 18% 16% 16% 17%
Net Margins 13.0% 13.0% 11.0% 10.0% 10.0% 11.0%
Net Income (MM) $1,949 $1,925 $1,670 $1,496 $1,816 $2,238
Net Interest Expense (MM) -$363 -$374 -$411 -$425 -$365 -$378
Depreciation & Amort. (MM) -$1,376 -$1,477 -$1,574 -$1,671 -$1,999 -$2,038
Earnings Per Share $4.41 $4.45 $3.91 $3.52 $4.3 $5.26
EPS Growth n/a 0.91% -12.13% -9.97% 22.16% 22.33%
Diluted Shares (MM) 442 432 428 425 422 425
Free Cash Flow (MM) $4,689 $5,264 $5,692 $5,035 $6,242 $7,123
Capital Expenditures (MM) -$1,509 -$1,694 -$1,818 -$1,632 -$1,904 -$2,587
Net Current Assets (MM) -$13,093 -$13,729 -$14,464 -$18,351 -$18,902 -$20,952
Long Term Debt (MM) $8,752 $9,594 $13,280 $13,259 $12,697 $14,570
Net Debt / EBITDA 2.36 2.37 2.3 3.2 2.68 2.68
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.