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What Are the Biggest Risks for Waste Management?

In the video below, Fool analysts Blake Bos and Austin Smith discuss the biggest risks facing Waste Management (NYSE: WM  ) today. Investors may buy Waste Management for the stock's stability, but there are risks facing WM that could undermine that appeal.

The first is pressure on small governments, which rely on the federal government to be able to contract with companies like Waste Management for services. A cut to small government funding could hamper WM's ability to raise prices. Second, smaller competitors, especially in smaller markets, could step in an undercut WM's prices, forcing it either to lower prices or leave markets. Lastly, although investors are excited about Waste Management's entrance into the waste-to-energy area, the move also exposes the company to commodity price fluctuations. That could undermine some of the regularity investors have come to expect from WM in terms of margins and earnings.

Despite the three potential risks mentioned here, Waste Management has been a longtime favorite for dividend seekers everywhere. If you're wondering whether this dividend dynamo is a buy today, you should read our premium analyst report on the company today. Just click here now for access.

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  • Report this Comment On December 12, 2012, at 6:17 PM, TempoAllegro wrote:

    Of the three things mentioned, we can pretty much discount the second and third, I believe. For the third - converting trash to gas exposing the company to commodities risk - that kind of earnings surprise can only be positive going forward. Previously, the trash just sat there, earning zero profits. Now, it earns something. With gas at record lows, it can only go up from here.

    As to the second problem - smaller, local competitors undercutting Waste Management - any company worth its salt will be able to handle this and know which battles to take to the mat. It does not need to win everywhere, but with a strategy in place, winning some of them, with appropriate pricing structure or deals in target areas, can help Waste Management to compete. Their large scale, cheaper transport costs due to conversion of trash to fuel, and experience must help them to compete fiercely against most oncomers.

    The first one is a real threat. Government budgets are going to continue to tighten, but that should affect the whole industry. To me the question is not whether Waste Management is a good investment, but whether it is better than something else. It carries a huge amount of debt and there are other companies with a smaller dividend yield that offer greater capital appreciation that appeal more, in my opinion.

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