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Why is Waste Management is getting such a high valuation?


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I was looking at WM's historical cash flows and noticed the following:


1. Revenue, EBITDA, FCFE, and EPS have grown between 1% and 3% per annum over the last 10 years.

2. Average ROE -10 yrs  =  9%

3. Avg. Return on Capital Employed (Greenblatt) = 18%

4. While the capital employed (including or excluding intangibles and goodwill) has remain unchanged, EBIT has grown 2% over the 10-year period.

5. The company spends 60% of its FCFE in dividends and 30% in stock buybacks, and the rest in acquisitions.


Now when I look at its valuation using a 10-year DCF model, the current price seems to imply 9% annual growth in FCFE.


What do you attribute to such a high premium to a non-growth business, institutional following?





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