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

To: Spekulatius who wrote (45559)	11/18/2011 11:55:06 AM
From: E_K_S	Read Replies (1) \| Respond to of 78547

Republic Services, Inc. Common (NYSE: RSG ) Waste Management, Inc. Common S(NYSE: WM) It's hard for me to think that WM will not see a significant cost savings (eventually) by switching their truck fleet to NG, I have not studied the annual reports for WM but when I researched this industry two years ago both Republic Services, Inc. Common (NYSE: RSG ) and Waste Management, Inc. Common S(NYSE: WM) were the two companies that appeared to be the industry leaders to consider. finance.yahoo.com They both operate in a regulated industry (quasi monopoly). They can increase customer rates pretty easily to recover new capital investments, are able to collect non payment fees w/ property liens (electric utilities do not even have this power) and are in an industry that has seen very little change in the past 100 years. I started to look at this industry when I was doing some home renovations and carted loads of trash to our local landfill (operated by Waste Management). It was quite expensive to dump my construction trash in the landfill. It turns out that the City participates in the revenue sharing with the contracted operator. I later discovered that the municipal landfill was seen as a large profit center for the City (ie. City of San Jose). Imagine this occurring all over the U.S. with cities in desperate financial shape looking for new ways to generate new revenue sources. Because of the slumping economy and the huge number of foreclosures, the garbage industry is for the first time seeing a slump in revenues (why pay garbage bills if you no longer pay your mortgage). Therefore, one would expect the waste haulers to be selling at all time lows. Furthermore, this is an excellent opportunity for the waste companies to lock in multi year municipal service contracts. If they can be profitable in this environment, then when the economy recovers they should be on a better growth path than their numbers indicate now. Combine this with the potential cost savings with well thought out managed integrated waste disposal systems (like using cheap NG to power their fleet vehicles). I see the long term potential for a more profitable industry (higher industry ROA & ROE). Their ROI for new equipment and disposal systems are almost guaranteed since being in a regulated industry they can raise their service fees to cover their new capitalized investments. Have you ever had your garbage bill reduced? Forward PE's are around 12-13. It might be possible to pick up a little cheaper on any market sell off. Historically, they run higher in the 16 range. These integrated waste disposal systems have a huge upfront cost but over the long run could help lower operating costs to the point where overall industry earnings are higher thus providing for the possibility of higher long term industry PE's in the high teens (similar to the more profitable regulated integrated utility companies). Just more food for thought. EKS Two Charts on Natural Gas vs. Oil Prices, Gas is Now 75% Cheaper On an Energy-Equivalent Basis vs. Oil Message 27774293 "Natural gas isn't just readily available at a 10% or 20% discount to oil -- but more than 75%. These economics are simple but powerful. It's hard to justify paying $1 for an energy source when you can buy something comparable for $0.25."