Stock Analysis on Net
Stock Analysis on Net

Waste Management Inc. (NYSE:WM)

This company has been moved to the archive! The financial data has not been updated since February 15, 2022.

Present Value of Free Cash Flow to Equity (FCFE)

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In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

Waste Management Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 12.01%
01 FCFE0 1,767
1 FCFE1 2,002 = 1,767 × (1 + 13.32%) 1,788
2 FCFE2 2,246 = 2,002 × (1 + 12.18%) 1,790
3 FCFE3 2,494 = 2,246 × (1 + 11.04%) 1,775
4 FCFE4 2,741 = 2,494 × (1 + 9.90%) 1,741
5 FCFE5 2,981 = 2,741 × (1 + 8.76%) 1,691
5 Terminal value (TV5) 99,808 = 2,981 × (1 + 8.76%) ÷ (12.01% – 8.76%) 56,603
Intrinsic value of Waste Management Inc. common stock 65,388
 
Intrinsic value of Waste Management Inc. common stock (per share) $157.72
Current share price $142.68

Based on: 10-K (reporting date: 2021-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.86%
Expected rate of return on market portfolio2 E(RM) 13.54%
Systematic risk of Waste Management Inc. common stock βWM 0.82
 
Required rate of return on Waste Management Inc. common stock3 rWM 12.01%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rWM = RF + βWM [E(RM) – RF]
= 4.86% + 0.82 [13.54% – 4.86%]
= 12.01%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Waste Management Inc., PRAT model

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Average Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Selected Financial Data (US$ in millions)
Cash dividends declared 970 927 876 802 750
Net income attributable to Waste Management, Inc. 1,816 1,496 1,670 1,925 1,949
Operating revenues 17,931 15,218 15,455 14,914 14,485
Total assets 29,097 29,345 27,743 22,650 21,829
Total Waste Management, Inc. stockholders’ equity 7,124 7,452 7,068 6,275 6,019
Financial Ratios
Retention rate1 0.47 0.38 0.48 0.58 0.62
Profit margin2 10.13% 9.83% 10.81% 12.91% 13.46%
Asset turnover3 0.62 0.52 0.56 0.66 0.66
Financial leverage4 4.08 3.94 3.93 3.61 3.63
Averages
Retention rate 0.50
Profit margin 11.43%
Asset turnover 0.60
Financial leverage 3.84
 
FCFE growth rate (g)5 13.32%

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

2021 Calculations

1 Retention rate = (Net income attributable to Waste Management, Inc. – Cash dividends declared) ÷ Net income attributable to Waste Management, Inc.
= (1,816 – 970) ÷ 1,816
= 0.47

2 Profit margin = 100 × Net income attributable to Waste Management, Inc. ÷ Operating revenues
= 100 × 1,816 ÷ 17,931
= 10.13%

3 Asset turnover = Operating revenues ÷ Total assets
= 17,931 ÷ 29,097
= 0.62

4 Financial leverage = Total assets ÷ Total Waste Management, Inc. stockholders’ equity
= 29,097 ÷ 7,124
= 4.08

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.50 × 11.43% × 0.60 × 3.84
= 13.32%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (59,153 × 12.01% – 1,767) ÷ (59,153 + 1,767)
= 8.76%

where:
Equity market value0 = current market value of Waste Management Inc. common stock (US$ in millions)
FCFE0 = the last year Waste Management Inc. free cash flow to equity (US$ in millions)
r = required rate of return on Waste Management Inc. common stock

FCFE growth rate (g) forecast

Waste Management Inc., H-model

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Year Value gt
1 g1 13.32%
2 g2 12.18%
3 g3 11.04%
4 g4 9.90%
5 and thereafter g5 8.76%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 13.32% + (8.76% – 13.32%) × (2 – 1) ÷ (5 – 1)
= 12.18%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 13.32% + (8.76% – 13.32%) × (3 – 1) ÷ (5 – 1)
= 11.04%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 13.32% + (8.76% – 13.32%) × (4 – 1) ÷ (5 – 1)
= 9.90%