Thursday, August 23, 2012

Longs should waste no time looking at Waste Management (WM)

Those looking into some catalyst might want to ponder over this name for the week. After looking into the name which I originally got from Barron's is definitely worth a look:

Waste Management (WM) -
Waste Management was a great growth stock in the late 1990s, rising 450% between 1994 and 1999, to a peak above $55, as it delivered rapid profit growth by rolling up the fragmented waste-services industry. The company was then beset by accounting inquiries, management turmoil, and shareholder lawsuits, before settling into a stagnant middle age in recent years. Garbage volume has been flat to down for years, thanks to conservation, recycling, and slow industrial growth, and is just now firming from its downturn during the recession. WM offers stability, little global risk, and a generous dividend policy that puts its yield at 4%. However, the math dictates that dividend growth will be slower and slighter, and buyback activity reduced, compared with recent years. That eventually could draw more attention to the company's unimpressive operating performance.

Points to Consider -

**Revenue, earnings, margins, and cash flow have been stagnant for years. It is undergoing the latest in a succession of cost-cutting programs to rationalize an organization built by buying garbage-collection and landfill operations over decades. Pricing power is scant, capital spending to maintain its vehicles and facilities is a ceaseless treadmill, and rates fetched on the recycled cardboard and aluminum it sells have ebbed.

**Spending on items like maintenance of Waste Management's truck fleet has to continue even if revenue and cash flow have been stagnant for years.

**The company's dividend has grown dramatically in recent years and now consumes a majority of its net income and free cash flow. While the payout at current levels appears secure, the company won't be able to raise distribution levels very much from here. And with its shares already valued at a premium to the broad market, based on current and expected earnings, it's hard to see the yield falling significantly below today's 4% level through further stock appreciation. The spokeswoman notes the company already has started to slow its rate of dividend increases. After two years of 10-cent hikes, the payout went up 6 cents a share in 2012, from 2011.

** About 74 million net shares have been retired through buybacks since 2006, helping per-share earnings to rise modestly. Yet it is the sizable dividend increases that have held investors' attention and kept the shares afloat. At the current rate of $1.42 a share, or $658 million in total, dividends this year will consume more than 57% of projected free cash flow, and about two-thirds of expected earnings of $2.14 a share. Waste Management still trades at 16.6 times expected 2012 earnings, a 20% premium to the broad market–only, it seems, because of the dividend.

Waste Management/WM
Market Value (bil)
Recent Price
52-Week High
52-Week Low
2011 EPS
EPS 2012E
P/E 2012E
Source: Thomson Reuters

** Waste Management in 2006, revenue was $13.4 billion, cash generated from operations was $2.5 billion and, after capital spending of $1.3 billion, free cash flow amounted to $1.2 billion. In 2011, it was as if time had stood still: Revenue totaled $13.4 billion, cash from operations slightly below $2.5 billion and, after $1.3 billion in capital spending, free cash flow was just over $1.1 billion. So, there was no growth and, indeed, very little variation in yearly results within that span, even though the U.S. economy was about 15% larger in 2011 and the company, on a net basis, had spent nearly $800 million on acquisitions. For 2012, forecasts are for more of the same: revenue of $13.8 billion and, according to company guidance, $1.1 billion to $1.2 billion in free cash flow.

**Waste Management has missed adjusted per-share earnings forecasts in five of the past eight quarters. Price increases, crucial given flat waste volumes, have been hard to come by, and will likely fall short of 2% again this year. Municipalities, a major customer, face abiding financial pressures. Prices for the recycled material the company sells have been soft and will remain a headwind this year.

Sunday, August 12, 2012

NeuStar (NSR) – Market Leader with great prospects -

Those looking into some catalyst might want to ponder over this name for the week. After looking into the name which I originally got from Barron's this def. is worth a serious look:

Important time period – 1H2013

Potential Long -
NSR - NeuStar was created in 1996 to provide clearinghouse services to the telecommunications industry. NeuStar, Inc. provides real-time information and analytics to the Internet, communications, entertainment, advertising and marketing industries. It offers a range of services, which include registry services, managed domain name system, services, Internet Protocol, services, fixed IP geolocation services, Internet security services, and Web performance monitoring services. It operates in three segments: Carrier Services, Enterprise Services and Information Services

Notes or points to keep in mind –
NeuStar was created in 1996 to provide clearinghouse services to the telecommunications industry.

Manage number portability for both landline and mobile meaning when a customer wants to change providers and want to have the same phone number - NSR does it. NSR provides addressing and routing for every single phone call and text message in U.S. Operates under long-term contracts with all telecom firms with annual escalators of 6.5%,until 2015. NSR has been flawless under contract for the past 15 years. There are 4700 telecom. Virtual monopoly in the US so NSR is very valuable to whole network and not easily replacable. That business is 50% of NSR of revenue.

2nd business is enterprise which services the Internet infrastructure space. NSR addresses and routes about 20% of all Internet traffic globally. Emerging growth opportunities include network security services; majority enterprise revenue is subscription-based, so easy to predict. How does that work - If I make a phone call, either on a land line or a cellphone, and I'm trying to find your cellphone, the phone call essentially goes up into the cloud and through NSR databases. NSR also acquired Targus because of which NSR is able to provide real-time use in marketing, advertising, and customer support.

NSR trades at less than 10x 2013 cash earnings, and the stock could double in the next year or two. NSR has good management and made smart acquisitions. Bought back 12% of the shares in the past year.

RISK: The NSR contract with all telecommunication firms runs through the middle of 2015 but NSR is the single vendor in the space. NSR renewal process for the contract starts in 1H 2013. The risk of losing their contract is almost nil, because  the complexity they are dealing with and the investments made by those 4,700 telecom entities in connecting with NSR. Additionally NSR’s performance has been flawless.                                                                                           

Wednesday, August 1, 2012

Nabors : Positive Catalysts Will Create Upside For Medium To Long Term Investors

I have posted an article on Seeking alpha which goes into details about how to profit from going long Nabors Industries (NBR). It’s for medium to long term investors. The potential upside is between USD 8 to USD 10 a share.
If anyone reading do invest in special situations, this might make a good read. Either you can click here or go to Seeking Alpha and  and check out "kedar special situations" Its under long ideas for Coinstar (CSTR).

Thank you