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Why a Defensive Stock Like Waste Management Tumbled 16.5% in March

By Neha Chamaria - Apr 7, 2020 at 12:52PM

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The coronavirus market selloff hit shares of the waste management company, but there's a reason the stock's recovering in April.

What happened

Shares of Waste Management Inc. (WM 0.10%) lost 16.5% in value in the month of March, according to data provided by S&P Global Market Intelligence. When an uncertain and unprecedented event like the COVID-19 pandemic causes a market sell-off, even typically defensive and recession-proof stocks can take a hit.

Waste Management too has had to make some difficult decisions in these challenging times, but there's something about the company that may have appealed to investors, which is why the stock is back in the green this month.

So what

Waste collection and disposal is an essential service, but it also requires workers to be out on the field to collect trash, which can expose them not only to coronavirus risk but also to hazards such as the medical waste that's piling up. Sourcing proper protective equipment for field employees to ensure their safety is another challenge facing waste management companies right now.

A woman throwing a crumpled paper in a recycling bin.

Image source: Getty Images.

Waste Management, therefore, reduced its staff level last month, shut down some sites, and discontinued "nonessential" services like bulk goods, electronics, and yard waste collection at some places. That means a decline in usual business for the company, which appears to have triggered market fears of a poor ongoing quarter for Waste Management, leading to the fall in its share price.

Impressively, though, Waste Management CEO Jim Fish revealed in an April interview with Yahoo! Finance that the company is not laying off any workers and has guaranteed a 40-hour workweek's pay to nearly 45,000 employees amid the crisis.

Waste Management further made the following statement to the waste industry's leading publication, Waste Dive: "Waste Management will excuse COVID-19-related absences, and employees whose health is impacted by the coronavirus will receive up to 40 hours of weekly pay or may qualify for short-term disability."

Now what

Waste Management is a well-managed company that should be able to ride out this storm. In February, the company projected 4% revenue growth and free cash flow of $2.15 billion to $2.25 billion for 2020. Even if it falls short of those projections, that shouldn't detract from the company's worth in the eyes of long-term investors.

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool recommends Waste Management. The Motley Fool has a disclosure policy.

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