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Better Buy: Waste Management or Republic Services?

By Motley Fool Staff | More Articles
December 3, 2009 | Comments (2)

In a new Motley Fool series, we pit two stocks against each other on five criteria to determine the better buy.

Today's matchup is Waste Management (NYSE: WM ) vs. Republic Services (NYSE: RSG ) . Using five short-of-scientific-but-carefully chosen criteria, let's determine which is the better buy according to the numbers:

	Factor	Waste Management	Republic Services
Cheapness	(P/E ratio)	18.3	60.8
Growth	(5-year growth rate)	4.6%	.4%
Operations	(net margin %)	7.84%	4.41%
Balance Sheet	(debt/equity ratio)	1.33	.93
CAPS Rating	(scale of 1 to 5 stars)

Round 1: Cheapness

Advantage: Waste Management. Cheapness is determined by P/E ratio. The lower the better. Be careful of earnings near zero that skew the ratio, one-time gains and losses, and pasts that aren’t indicative of futures (the more dynamic the industry, the more this is true).

Round 2: Growth

Advantage: Waste Management. Growth here is the trailing 5-year EPS growth rate. This trailing earnings growth helps put notoriously-optimistic Wall Street projections in perspective.

Round 3: Operations

Advantage: Waste Management. Net margin percentage shows how efficiently a company turns revenue into profit. The more similar the business models, the more relevant the comparison.

Round 4: Balance sheet

Advantage: Republic Services. As with net margins, the debt to capital ratio is most relevant in comparing companies in similar industries. In this battle we give the nod to the lower-debt company, but attention should also be paid to the cost of debt, interest coverage ratios, and the stability of the business (the more stable a company’s operations, the more debt it can safely carry).

Round 5: CAPS rating

Advantage: Waste Management. A company’s CAPS rating is our community’s opinion of the stock. You can get more information on your stocks -- and our community’s opinions of those stocks -- by clicking over to our CAPS area.

Each of these five rankings need more context -- like, how these companies stack up against key competitors such as Valhi (NYSE: VHI ) and American Ecology (Nasdaq: ECOL ) . But these basic numbers suggest that Waste Management is a better buy. What do you think? Let us know in the comments section below.

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No individual person selected the stocks in this article, so there is no author to disclose an interest in them. Since this article was automatically generated by identifying the stocks loved both by the CAPS community and by buyers in today’s market, it is possible that Motley Fool personnel (and even The Motley Fool itself, through our Million Dollar Portfolio, Motley Fool Pro, and Ready Made Millionaire services), have positions in these stocks. We thought you'd like to know that. You can learn more about The Motley Fool’s disclosure policy here.

Read/Post Comments (2) | Recommend This Article (16)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.

Report this Comment On December 15, 2009, at 11:07 AM, Fool wrote:

The article fails to mention the merger with Allied Waste that took place in December of 2008. TThis resulted in a 4th quarter loss that changed the companies financial metrics, and therefore makes the comparison flawed.
Report this Comment On January 05, 2010, at 1:18 PM, whr3 wrote:

I found some 5 year rates and PE's at Yahoo that don't include the merger and WM is still a little better. But insiders are selling both these stocks at current prices. The PEG is better for RSG but I think the 5-year growth rate estimates at RSG are too inconsistent with history. Between the two, the PE for me is the deciding factor so I would vote for WM. Due to the insider trading picture, I like ECOL better than either of these two (and so I own ECOL).

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