On Monday, Citi maintained its Buy rating and $248.00 price target for Waste Management (NYSE:WM) stock, as discussions of a potential acquisition of Stericycle (NASDAQ:SRCL) emerge.
Waste Management is reportedly nearing a deal to purchase Stericycle for approximately $7 billion, with an announcement possible as early as today. No official statements have been made by either company regarding the acquisition.
According to the analyst from Citi, the transaction, if finalized, could initially be neutral to Waste Management's earnings per share (EPS) and free cash flow (FCF).
The estimated increase in net leverage by 0.5 times is expected to normalize within a year, considering Waste Management's anticipated $3 billion FCF in 2025.
The financial assumptions include a cost of debt roughly estimated at 5%, aligning with Waste Management's recent notes and commercial paper, and cost synergies estimated at 4%, which is on par with similar industry mergers.
The analyst outlined key questions that would arise from the deal, focusing on long-term margin expansion, potential revenue synergies, and further consolidation opportunities.
Waste Management's large scale and national platform are believed to be significant advantages that could lead to immediate synergies, particularly in improving route density and hastening Stericycle's existing consolidation efforts in smaller medical waste and document destruction markets.
The acquisition talks come at a time when Waste Management could potentially enhance its service offerings and market presence.
The company's strategic positioning and financial performance will be closely watched by investors as details of the deal and its implications become clearer.
InvestingPro Insights
As Waste Management (NYSE:WM) approaches a potential acquisition of Stericycle, investors are keenly observing the company's financial health and market position. According to InvestingPro data, Waste Management boasts a robust market capitalization of $84.57 billion and maintains a high P/E ratio of 33.91, reflecting investor confidence in its earnings potential. With a dividend yield of 1.42% and a consistent track record of raising dividends for 27 consecutive years, the company demonstrates a strong commitment to shareholder returns.
Two notable InvestingPro Tips that investors may find particularly relevant in light of the acquisition include Waste Management's status as a prominent player in the Commercial Services & Supplies industry and its ability to maintain dividend payments for an impressive 27 consecutive years. Additionally, analysts have revised their earnings upwards for the upcoming period, indicating optimism about the company's financial prospects. These factors, combined with a year-to-date price total return of 18.08%, suggest a positive outlook for Waste Management as it potentially expands its operational scope.
For those interested in deeper analysis, the InvestingPro platform offers additional tips that can provide further insights into Waste Management's financial metrics and strategic moves. Using the coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription to access these valuable resources.
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