U.S. companies involved in the handling of garbage are well positioned to benefit from the Biden administration’s push to produce renewable natural gas (RNG) from waste in an effort to reduce greenhouse house emissions. Stocks of companies like Republic Services (NYSE:RSG) and WM [formerly Waste Management (NYSE:WM)] could be attractive additions to investors’ portfolios, as they have the technology required to capture methane gas at landfill waste sites and convert it into RNG.
Landfills are generally considered hotspots for methane emissions. But trash management and recycling companies like Republic Services and WM have been establishing plants that separate methane from biogas, which is generated by the decomposition of waste material in a landfill. They also benefit from tax credits for building new landfill gas plants. Moreover, these companies are gaining from the growing demand for recycled materials, especially from packaging producers.
Let’s take a look at the prospects and Wall Street’s ratings for these two companies.
Is WM a Good Stock to Buy?
With over 259 landfill sites, WM boasts the largest network of landfills in the U.S. and Canada. As of the end of 2022, the company had 135 landfill gas projects for producing commercial quantities of methane gas and 97 material recovery facilities (MRFs).
Last year, WM announced more than $2.2 billion in incremental capital expenditure over a period of four years. It expects 43 recycling facilities, including 31 automation projects and 12 new facilities, to generate $240 million in operating EBITDA in 2026. Further, it has higher expectations for RNG business, with 20 owned-RNG plants projected to generate $500 million in operating EBITDA in 2026. Overall, WM expects its adjusted operating EBITDA and free cash flow to nearly double from 2019 to 2027.
During the Q1 earnings call, the company disclosed that it remains on track to bring online two new RNG facilities and seven newly automated MRFs by the end of this year.
Wall Street is cautiously optimistic on WM, with a Moderate Buy consensus rating based on five Buys and five Holds. The average price target of $174.78 suggests 8.4% upside.
Is Republic Services a Buy, Hold, or Sell?
Republic Services owned or operated 206 active landfills as of the end of Q1 2023. It operates 72 recycling centers and 73 landfill gas and renewable energy projects in North America. The company aims to increase the recovery and circularity of key materials from the waste stream by 40% by 2030.
During the Q1 earnings call, Republic Services stated that 57 renewable natural gas projects being co-developed with its partners are advancing and the company expects at least six of these projects to begin operations this year. Further, the company plans to build at least four polymer centers in the U.S. that will aggregate, sort, grind, and wash scrap plastics to meet the demand for recycled-content packaging. It expects these facilities to bring in about $250 million in revenue annually.
With four Buys and four Holds, Republic Services earns a Moderate Buy consensus rating. The average price target of $154.63 suggests 9.6% upside.
Waste disposal companies like Republic Services and WM are investing in RNG production and recycling technology. These companies are expected to gain from the green push of the Biden administration.