UPDATE: Wunderlich Upgrades Waste Management to Buy on Accelerating Trends

In a report published Thursday, Wunderlich Securities analyst Michael E. Hoffman upgraded the rating on Waste Management

from Hold to Buy, and raised the price target from $35.00 to $43.00. In the report, Hoffman noted, “We are raising our rating and price target on Waste Management (WM) to Buy and $43. If WM has regained its price leverage ‘mojo' then even if costs are flat (grow in line to less than the top line) and volume is consistently positive (up 50bps to 100bps), then the FCF growth off a starting base of $1.0B supports $43 per share. For this to work, core solid waste price has to improve to 2.0% from 1.6% posted in 1Q13. Inflation assumptions would be 1.5-2.0% and underlying GDP is 2-3%. Implied is that WM can extract productivity of 50-75bps and cost improvements of another 25bps. That means a real price spread returns and WM can demonstrate EBITDA margin expansion from 25% to about 29% over a four-year period. FCF should be viewed on a LTM or FY basis--there is too much quarterly variability.” Waste Management closed on Wednesday at $39.55.