(NYS: WM) stock has been in the dumps lately: After a big slump in mid-2011, the company has trailed the S&P 500 by 20 percentage points. Since then, however, the nation's largest garbage hauler has taken steps to position itself for future success, leveraging its dense collection network and reorienting itself toward greener, more environmentally friendly waste solutions. Most recently, the company has announced an ambitious restructuring plan to create a flatter, more responsive, and more effective management structure.
To help investors decide whether Waste Management is trash or treasure, The Motley Fool has compiled a premium research report on the company. Today, you can enjoy a free sneak peek of the report. Read on to learn more about three critical areas investors should watch for Waste Management.
Margin expansion and costs as the restructuring takes effect.
Waste Management's sweeping restructuring plan is ultimately designed to drive operational excellence, but in the short term investors will be able to monitor how effectively that plan is being employed by watching gross margins and selling, general, and administrative expenses.
The primary architect of the plan is Chief Financial Officer Jim Fish, newly appointed to the role in July. Fish intends to eliminate completely the "Group" layer of management, and have "Area" managers report directly to two new vice-presidents of field operations at the corporate level. Further, Fish has brought down the number of areas. All told, the restructuring should wring out 100 basis points from the company's cost structure by 2013, with an eventual goal of saving 200-400 basis points annually. No material decrease in selling, general, and administrative expenses might indicate that Fish is having trouble implementing his strategy.
Economic growth and the housing market.
Historically, waste volumes have been tightly tied to the overall health of the economy, with an 82% correlation between waste volumes and economic growth. Residential construction in particular is a big volume driver for waste haulers, as the ubiquitous dumpsters at build sites prove. While Waste Management remained solidly profitable throughout the recession, any uptick in North American economic growth or housing activity would be a boon.
Interest in paying a premium for greener waste solutions.
Coming out of the most recent recession, one hard-to-escape conclusion is that waste volumes have not bounced back as they did in previous recessions. While a slower housing recovery is certainly part of that puzzle, we may also be seeing a secular trend away from waste. Corporations and consumers alike have shown an interest in reducing the amount of resources discarded, as frugality and environmentalism increasingly go hand-in-hand.
This won't be a problem for Waste Management if it can make up in yield what it loses in volume; its best-in-field recycling and treatment technologies should allow it to capture high-value contracts as long as customers are able to pay. Continued pressure on public budgets, however, may lead Waste Management's municipal solid waste clients to look for the absolute cheapest solution, not the best-value solution; it could be left out in the cold as budget regional carriers undercut the company on price.
Besides the preceding sample, our premium research report digs deep into the opportunities Waste Management is looking to exploit, as well as risks the company faces. You'll also find reasons to buy or sell, a look at the company's management team, and the Foolish Bottom Line on Waste Management. Best of all, the report keeps investors informed with a full year of analyst updates. To keep reading, just click here to get your copy today.
The article 3 Key Areas for Waste Management Investors to Watch originally appeared on Fool.com.Fool contributor Daniel Ferry and The Motley Fool own shares of Waste Management. Motley Fool newsletter services recommend Waste Management. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.