With news out Monday that Waste Management Inc (WM), one of the largest trash haulers in the U.S., is acquiring rival Advanced Disposal Services Inc (ADSW) for about $5 billion, waste management equities could be poised to take off after being laggards.
That theme would benefit some exchange traded funds (ETFs), including the VanEck Vectors Environmental Services ETF (NYSEArca: EVX). EVX follows the NYSE Arca Environmental Services Index. That benchmark “is intended to track the overall performance of companies involved in waste collection, transfer and disposal services, recycling services, soil remediation, wastewater management and environmental consulting service,” according to VanEck.
Shares of garbage haulers have recently been struggling.
“Garbage has fallen out of favor. Shares of the two largest U.S. trash haulers, Waste Management and Republic Services , are down 2.4% in April—four percentage points worse than the Dow Jones Industrial Average’s return,” reports Al Root for Barron’s.
Waste Management and Republic Services are EVX’s third- and fourth-largest holdings, respectively, combining for over 20% of the fund’s weight. EVX has the largest weight to Waste Management of any US-listed ETF.
EVX ETF Chart YTD Performance Through April 16, 2019. Chart via TradingView.com
What’s Next for Waste Haulers?
“The negative sentiment seems odd when you consider the sector’s solid performance,” reports Barron’s. “The two garbage haulers have grown earnings per share at a 12% average annual clip for the past five years, and their stocks have gained 22% a year. Wall Street expects 12% annual earnings growth for the next two years, while multiples are right in line with historical averages.”
More industry consolidation could be on the way following the aforementioned deal for Advanced Disposal Services by Waste Management, which solidifies the latter’s position as the largest U.S. waste hauler.
“The deal merges the waste industry’s No. 1 and No. 4 companies and is the sector’s largest merger in more than a decade. It’s WM’s largest acquisition in history,” according to UPI.
EVX, which is up nearly 18% this year, offers more than just exposure to trash haulers. The ETF holds 22 stocks, nearly 73% of which are industrial names. The healthcare and materials sectors combine for 17.70% of the fund’s roster.
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