Allied Waste (AW) Looks Like Trader’s Treasure
Posted on Monday, April 7th, 2008 | In Stocks to WatchI think Allied Waste (AW) compares favorably to peers Waste Management (WMI) and Republic Services (RSG).
All three companies are expected to grow their earnings by about 11% per year over the next five years. However, Allied looks much cheaper than its peers, trading at 1.15 times book value compared with 2.9 times for Waste Management and 4.2 times for Republic.
Allied could achieve double-digit annual growth in its share price over the next ten years simply by expanding its price/book ratio to the level of Waste Management’s. If the company also manages to grow at the expected 11% per year, the total return could prove impressive indeed.
Allied stock has challenged the $14 mark several times over the last five years. I believe it is due for another run at that level; that would require nothing more than meeting estimates and a modest increase in the price/book ratio to about 1.3 times. A free cash flow yield of 7% (the average of its peers) would also support a $14.50 share price.
Disclosure: At time of publication, William Trent has no financial position in the companies mentioned.
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 About William A. Trent (http://stockmarketbeat.com)
Stock Market Beat editor William A. Trent, CFA, has been an equity analyst since 1996 and is co-author of Understanding and Evaluating Prospectuses, Offering Documents, and Proxy Statements. His experience includes stints with institutional investors responsible for more than $70 billion in assets and covers all market-cap sizes. Sector concentrations have been within the TMT (Telecom, Media and Technology) and Transportation sectors. He is also the senior editor of Financial Education. He is available for freelance writing and consulting projects and can be contacted here. |
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