The shares of Waste Management Inc. experienced a sell-off on Thursday but then managed to rebound. The move to the downside happened as Stifel downgraded the stock from buy to neutral. However, the stock enjoyed demand at lower levels as most of the other analysts still like it. Who is right here?
Why is it important?
Waste Management is a company that provides waste disposal and recycling solutions that create clean and renewable energy. As environmental concerns are getting more and more pronounced, the company’s main solid waste business is in very good shape and has decent prospects.
The company looks very driven to show sustainable growth. It is making large investments in technology, capital equipment, and human resources. The proactive policy of cost reduction helped to achieve 7.2% y/y operating EBITDA growth.
On the other hand, the stock has gained 24.4% in the past year. This advance brought its P/E ratio to 22.5, which makes it expensive enough. The weak spots of the company include a debt-laden balance sheet and seasonal fluctuations in revenues.
Notice that Stifel saw the problem not in the company’s core trash collecting business but in its recycling business and wet weather. That indeed may give the overbought stock a reason for a correction. At the same time, the longer-term prospects of the business seem more than fine.
The stock tested levels around 97.60 but then returned above 100.00. A close above the 50-day MA at 100.30 will open the way up for a return up to 102.00 and the April high at 104.70. Support is at 98.30 and 96.00. A fall below the letter will make the stock vulnerable for a decline to 92.20 (200-day MA).