Friday, October 26, 2007

WMI Hit Hard After Earnings Announcement

Investors are punishing Waste Management this morning after the company announced lower-than-expected earnings for the 3rd quarter.

Earnings fell from $300 million to $278 million for the quarter, year over year - a drop of around 7%. The stock, a recent addition to our Evergreen Portfolio, is down 6% this morning.

Here's the ironic thing. Most of this was due to the fact that oil prices have increased to the point where using gas and diesel is as expensive as using alternative fuels like natural gas and biodiesel. As the disparity between traditional fuels and alt fuels has diminished, so have the tax benefits to corporations under Section 45K.

The credits are based on the disparity, and designed to help companies pay for going green. But when the disparity decreases, the amount of benefits decrease.

It's rather ironic. But this is an odd case of WMI being punished for high oil prices... because of its efforts to go green.

Nonetheless, the company's fundamentals are still the same as when we recommended WMI. We still believe this is a good company, and that it will bounce back from this snafu.

Stay tuned.


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