On another down day for stock markets -- Dow down 3%; Nasdaq off a more modest 0.3% -- Waste Management (NYSE:WM) shares fells farther than most. By close of trading today, Waste Management stock had fallen 10.6%.
The easy answer is coronavirus. And the nearly as easy answer is the Senate's failure to pass a coronavirus bailout bill over the weekend. But there's a third factor at work here today.
This morning, investment bank Stifel announced it is retaining its "buy" recommendation -- but lowering its price target -- on Waste Management shares. There aren't a lot of details available on this price action. StreetInsider.com, for example, notes only that it happened, and that the cut is from a price target of $130 a share to $115.
Still, investors appear to be reacting to the negative sentiment instinctively and leaving the "whys" for later.
Does this make sense, though? After all, Stifel still says Waste Management is a "buy" -- just not as strong a buy as it once believed. And with Waste Management closing the day below $88 a share, even Stifel's new, more muted endorsement implies that Waste Management stock could still rise nearly 31% over the next year -- and pay its shareholders a 2.2% dividend yield to boot.
Even if all this is true, however, I still more or less agree with investors' caution on this one. At its present $37.3 billion market capitalization, Waste Management stock sells for 22.2 times trailing earnings. That's less than WM once cost, but with the S&P 500 having fallen below 17 times its earnings, it leaves Waste Management stock looking pricey relative to the alternatives. Meanwhile, the stock's 8% projected growth rate -- even if unaffected by coronavirus -- is slower than the 10% growth average expected out of the S&P 500 as a whole.
Long story short, a relatively high price tag plus subpar growth means the worst may not be over for Waste Management stock just yet.