Some see upside to stock that's down in the dumps.

• Author: O'Connor, Brian J.
• Position: Money Matters

There's a joke in the garbage Business is always picking up. That's true for Raleigh-based Waste Holdings Inc. It's just not happening as fast as it used to. The company's revenue growth for 2001 -- about 3% -- is a far cry from

1999, when sales jumped 26%.

That's one reason its stock -- which sold for more than $27 a share shortly after Waste's 1997 initial public offering -- was trading for just $6.35, below book value, in late February. It also was hurt by a third quarter earnings revision last year, which the company blamed on a slow economy that produced less trash and delays in opening two waste-transfer stations. But the company is still making money, and the stock's low price-earnings ratio of 11.3 suggests it could be recycled for a profit down the road.

Waste Holdings (Nasdaq: WWIN) has 40 garbage-collecting operations, 10 landfills, 26 transfer stations and eight recycling centers in eight Southeastern states. The 32-year-old company hasn't paid dividends since its IPO, focusing on growth instead. It boosted revenue from $171 million in 1998 to $249.3 million in 2001. Its goal is to take trash from curbside to company-owned landfills. "The more vertically integrated you are in the solidwaste business, the better your margins are," says CEO Lonnie Poole Jr.

Eventually, maybe. But Waste Holding's profit margin actually dropped from 5% in 1997 to 3% in 2001, partly because of its growth. Net income slipped 35% in 2000, and 4% in 2001. Bottom lines in 2000 and 2001 were hit by increases in insurance and fuel costs, plus a 70% increase in interest expense since 1999 from borrowing to buy businesses and repurchase stock.

As the economy rebounds, though, so should Waste Holdings' growth, as contractors and factories increase production. Lower fuel costs and the new transfer stations should help its profit margin. The company's debt-to-equity ratio at the end of 2001 was still higher than the industry average of 1.8 but had dropped from 2.9 a year earlier to 2.0. Waste Holdings is restructuring its debt to cut interest expense and pursuing more acquisitions.

Two-thirds of the stock is held by the Poole family and management, making a takeover unlikely. And barring a big event, it will likely take several quarters of better earnings to move the stock price much. But at $6.35 a share, it won't take much to make a decent return and prove another cliche of the business: One man's trash is another man's treasure.

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