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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: gcrispin who wrote (30803)	6/12/2008 9:30:22 AM
From: gcrispin	Read Replies (1) \| Respond to of 78693

I have previously posted my positions in waste stocks. The group has done well in this environment and AW is up over 30 percent since I mentioned it here. This morning GS added AW to their conviction buy list. Below is the write-up. Allied Waste Industries, Inc. (AW) Buy: Adding shares of Allied Waste to Americas Conviction Buy List June 12, 2008 Source of opportunity In conjunction with our upgrade of the Waste coverage view to Attractive from Neutral, we believe shares of Allied Waste (AW) represent the most appealing combination of financial and operating leverage to ongoing municipal solid waste (MSW) pricing growth and volume decline deceleration. With shares of AW trading 1 standard deviation below their average historic enterprise value-to-EBITDA (NTM) multiples, we believe the market is discounting uncertainty about future volume and/or pricing growth – something we do not expect. Our $18 price target implies 36% upside potential. Catalyst 2Q08 MSW results – Waste Management (WMI) 1Q08 comments, our channel checks, and recent commentary indicate volume declines may have hit the bottom. We expect an update from every MSW company on volume declines (and pricing growth) on 2Q08 earnings conference calls. Share overhang – Blackstone Private Equity owns 11% of shares. We have no indication of timing of if/when they look to exit their position. Valuation We are slightly raising our 2008 and 2009 EPS estimates to $0.94 and $1.05 from $0.92 and $0.99, respectively, to reflect our views of volume growth acceleration, tempered by concerns surrounding a 2009 non-residential construction slowdown. Our $18 (from $13), 6-month target price is based on 7.9x EV-to-EBITDA (NTM), a 1% premium to the historic industry multiple and 1 standard deviation above AW’s historical mean since 2004. Key risks (1) A looming commercial construction slowdown and/or a US recession leads to further deterioration in volumes; (2) heightened credit concerns surrounding highly levered companies; (3) and rising fuel costs could negatively impact quarterly results – although most fuel is recoverable.