In a recent report, analysts at Stifel took an in-depth look at Waste Management, Inc. WM 0.44% and boosted their 2015 earnings estimates for the company. Here’s a breakdown of what they had to say.
The Numbers
Stifel’s updated 2015 sales estimate for Waste Management is $13.358 billion. Analysts slightly tweaked their EBITDA forecast from $3.4 billion to $3.467 billion as well.
However, the biggest estimate change was Stifel’s net income protections based on a $700 million lower debt load that expected in early January of this year. Analysts’ projections include the assumption that foreign exchange will continue to be a headwind in 2015 and paper prices will continue to be low.
Unpredictable Paper Prices
Used paper prices, the majority of the commodity exposure at Waste Management, can be extremely difficult to forecast. In the past year, the price of used paper has fallen about 25 percent.
The West Coast port strike has likely added to the downward pressure on used paper prices in 2015 because the strike has produced a buildup of paper inventory that will ultimately need to work its way through the market. According to the Stifel report, Waste Management processes and sells nine million tons of paper, and every $5 move in paper prices results in $40 million in annual EBITDA for the company.
Outlook
Stifel analysts reiterated a Hold rating on Waste Management. “We [originally] lowered the rating to Hold on concerns primarily about commodity prices and to a lesser degree foreign exchange,” analysts explain. They believe their slightly improved 2015 earnings estimates are still not good enough to boost the relatively low upside ceiling for the stock in the near-term.
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