Need an Untapped Energy Play? Try Waste Management

Here's a less risky renewable energy stock

   

Besides budget woes, the one thing cities and have too much of these days is garbage. Decomposing year over year in covered-over landfills, food and other organic matter is transformed into carbon dioxide (CO2) gas, creating a potential health hazard if it leaks into the air.

But the CO2 trapped in landfills is also a source of renewable energy. One company, Waste Management (NYSE:WM), has installed CO2 collection facilities in 115 U.S. landfills, and the company says that, when burned, land-fill-reclaimed gas generates enough electricity to supply 400,000 homes.  

Garbage-to-gas-to-electricity conversion is the kind of synergy we’re apt to see more of during this period of energy transition. WM hopes to have enough facilities by 2020 to power 2 million homes. That may be a relatively small number of households in comparison to some of the nation’s larger utilities supply. But it still might qualify WM as an energy play – one that’s potentially less risky than many other alternative energy stocks. The company’s No. 1 business remains garbage collection, after all. And times would have to get pretty tough before municipalities stopped collecting trash.    

Indeed, WM is into garbage collection the way Wal-Mart (NYSE:WMT) is into retailing. Check out the list of services on the company’s Web site and you’ll see that in addition to trash pickup, it handles everything from disposing of hospital waste to renting out portable toilets. Consider as well the number of landfills in this country in regions already served by WM, and you see a potential for sustainable growth.

Right now, WM sells for about $37, at just shy of 19 times earnings, with a 3.7% yield and near the top of its 52-week range of roughly $31 to $39. But there still may be some upside thanks to the company’s plans to go global. Two years ago, WM bought a 40% stake in the Chinese firm, Shanghai Environment Group with the aim of ramping up trash-to-electricity services in that nation, a move that keeps with WM’s reported goal of earning 20% of revenue from energy production, as Bloomberg reported.

Other publicly traded companies in the waste-gas-to-electricity space do exist. And though they’re small by comparison to WM’s nearly $18 billion market cap, they’re also worth a look. Rutland, Vt.-based Casella Waste Systems (NASDAQ:CWST) trades at about $7, well off its 52-week low of $3.20.

IESI-BFC (NYSE:BIN), based in Vaughan, Ontario, was been in acquisition mode since 2005, both in Canada and the U.S. In 2005, the company scooped up IESI Corp., adding waste-collecting operations in 10 southern and northeastern U.S. states. Last year, it bought Waste Services, whose waste collection operations were located throughout Canada and in Florida. BIN has a 2.1% yield and a recent price near $25, also well above its 52-week low of $17.10.

Watch this space, since more competitors are sure to enter the fray. One thing is certain, with trash being a product still produced in abundance in the U.S. and throughout the world, there will be room for plenty of landfills to go around.


Article printed from InvestorPlace Media, http://investorplace.com/2011/03/need-an-untapped-energy-play-try-waste-management/.

©2014 InvestorPlace Media, LLC

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