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Gold/Mining/Energy : Waste Management Inc. (NYSE: WMI)
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To: CoffeePot who started this subject2/5/2002 7:06:44 PM
From: Paul Lee   of 97
 
Waste Management
Waste Management Inc. (WMI-NYSE)
By J.P. Morgan (25.25, February 1, 2002)

This morning's news from Waste Management makes it clear that the weak economy is hurting margins enormously. The company said fourth quarter revenue would fall to $2.8 billion and that operating earnings would be $0.30 to $0.31 per share, lower than the Street's consensus estimate.

Although the company only disclosed revenue and earnings per share, we estimate that gross margins fell to approximately 38.5% in the fourth quarter, from 41.5% in the third quarter, a dramatic 300 basis point decline.

It is also clear that Waste Management's turnaround efforts are not offsetting the earnings shortfall as much as we had forecast. This is was the big news to us.


In our conversations with the company, they told us that the economic assumptions that they used for their previous forecast were too rosy. In our view, this has two new negative near-term implications for Waste Management's earnings and its ability to provide accurate guidance.

As we believe waste volumes lag GDP by three to six months, we do not expect Waste Management's earnings momentum to improve until year-end.

Because we believe earnings will continue to drive the price of this stock, we are downgrading shares to Long-term Buy from Buy.

Our new $28.50 12-month price-target assumes the stock trades back to its historic 8 times forward EBITDA multiple as earnings improve.

-- Amanda Tepper
-- Elonda Johnson
-- Barbara Farrell

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