DCF Studio

    WM · NYQ · Industrials

    Waste Management, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 133.57

    Market price

    USD 211.10

    Implied upside

    -36.7%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 13.7% of revenue against depreciation of 6.9%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Value Per Share

    Perpetuity growth
    USD 133.57-36.7%
    Exit multiple
    USD 244.10+15.6%
    Market price
    USD 211.10

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn2bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 27.4bnUSD 29.7bnUSD 32.2bnUSD 35.0bnUSD 38.0bn+8.6%
    EBITUSD 5.0bnUSD 5.4bnUSD 5.9bnUSD 6.4bnUSD 7.0bn+8.6%
    NOPATUSD 4.0bnUSD 4.3bnUSD 4.7bnUSD 5.1bnUSD 5.5bn+8.6%
    Add depreciation & amortisationUSD 1.9bnUSD 2.0bnUSD 2.2bnUSD 2.4bnUSD 2.6bn+8.6%
    Less capital expenditureUSD -3.7bnUSD -4.1bnUSD -4.4bnUSD -4.8bnUSD -5.2bn+8.6%
    Less increase in working capitalUSD -352.5mUSD -382.7mUSD -415.4mUSD -451.0mUSD -489.6m+8.6%
    Free cashflow to firmUSD 1.7bnUSD 1.9bnUSD 2.0bnUSD 2.2bnUSD 2.4bn+8.6%
    Discount factor0.96470.89780.83560.77760.7237-
    Present valueUSD 1.7bnUSD 1.7bnUSD 1.7bnUSD 1.7bnUSD 1.7bn+1.0%
    Present Value Of The ForecastUSD 8.6bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.619Reported 0.431, pulled toward 1.0 (Blume)
    Cost of equity8.40%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 84.4bn78.6% of capital
    Total debtUSD 22.9bn21.4% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC7.45%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 133.57

    89% of EV

    Forecast FCFF, final year
    USD 2.4bn
    Capex at depreciation, working capital in reinvestment
    USD 5.8bn
    Less reinvestment at g/ROIC (21.3% of NOPAT)
    USD -1.2bn
    Capitalised
    USD 4.5bn
    ROIC (reported)
    11.7%
    Terminal value, undiscounted
    USD 94.1bn
    Terminal value, discounted
    USD 68.1bn
    Enterprise value
    USD 76.7bn
    Less net debt
    USD 22.7bn
    Equity value
    USD 54.0bn

    Exit at 16.3x EBITDA

    Value per shareUSD 244.10

    93% of EV

    Terminal value, undiscounted
    USD 155.9bn
    Terminal value, discounted
    USD 112.8bn
    Enterprise value
    USD 121.4bn
    Less net debt
    USD 22.7bn
    Equity value
    USD 98.7bn

    Spread between methods: 59%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    5.45%218.32242.12273.82318.26385.25
    6.45%158.46170.65185.82205.25231.11
    7.45%118.91125.61133.57143.22155.20
    8.45%90.9094.6899.02104.09110.09
    9.45%70.0672.1874.5477.2180.26

    Outlined: this model. Green text: above today's price of 211.10. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year8.6%17.0%+8.4pp
    EBIT margin18.3%25.1%+6.8pp
    Discount rate7.5%6.1%-1.4pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.