Not too many years ago, you couldn’t go wrong by buying shares of the three Chicago W’s: Walgreen, Wrigley and Waste Management.
In Waste Management’s heyday as a growth company 20 years ago, its wheeling and dealing to obtain local-government garbage hauling contracts and landfills helped make it the most popular stock in the portfolios of Illinois state legislators.
Those days are long gone. From 1987 through 1997, Walgreen stock returned 25 percent a year on average, and Wrigley 24 percent–both above the 10-year annual average of 15 percent for the Standard & Poor’s 500-stock index. Waste Management’s average annual performance over the same period? Just 5.5 percent.
Now investors are wondering whether the proposed acquisition of Waste Management will hurt the performance of Houston-based USA Waste Services Inc.
Betting it won’t, several Wall Street firms Wednesday issued “buy” ratings on Waste Management. By the end of the day, its stock had gained $4.12, to $29.31; USA Waste added $3.87, to $43.
Waste Management’s sister companies also posted gains. Wheelabrator, which is in the process of merging fully into Waste Management, added 6 cents, to $16.31. London-based Waste Management International PLC gained 50 cents, to $6.87, in New York trading.
But not all analysts were bullish on the merger. Robert Friedman, a Standard & Poor’s environmental-equity analyst, reiterated his “avoid” rating on both firms, citing such weak industry fundamentals as eroding prices for waste-hauling services and slow growth in the business.
Moreover, Friedman told Bloomberg News, the “very different cultures” of the two companies raise serious questions about whether the merger will produce any net gains for shareholders.
“I expect the combined companies to underperform the S&P 500 over the long term,” he said.
