Chad is a member of The Motley Fool Blog Network — entries represent the personal opinions of our bloggers and are not formally edited.

In the waste removal business there are basically two behemoths that dominate the industry. These two companies command billions of dollars in market cap and look very similar. As we have found in the past if you dig deeper sometimes you can find Mr. Market mis-pricing one of the two companies. I believe that’s the case when you compare Waste Management (NYSE: WM) and Republic Services (NYSE: RSG).

Waste Management is the more well known name of the two so we’ll start there. Waste Management currently sports the following numbers:

Current Price: $ 34.33
P/E based on ’12 estimates: 14.93
Growth Expected: 10.00%
Yield: 4.14%
Combined Expected Return: 14.14% (Growth Expected + Yield)
Debt-to-Equity Ratio: 1.58 

Waste Management has a lot going for it — the company generates free cash, raises its dividend regularly, and is buying back shares. With a combined expected return of over 14% many investors would be happy to stop there and buy Waste Management.

That’s not enough for me. Just because one company is a decent buy doesn’t mean there isn’t a better buy elsewhere. This leads us to Republic Services. Republic is in the same industry of waste removal and is a smaller competitor to Waste Management. Republic clocks in with the following stats.:

Current Price: $ 28.25
P/E based on ’12 estimates: 13.99
Growth Expected: 14.15%
Yield: 3.12%
Combined Expected Return: 17.27%
Debt-to-Equity Ratio: 0.92 

Interesting isn’t it? Republic sells for a lower P/E ratio, has a higher expected growth rate, and you don’t give up much in dividend yield to get there. Republic is a smaller company, which accounts for the potential for higher future growth. Republic has also been buying back its shares. In addition, you’ll notice from the debt-to-equity calculations, that Republic could afford to leverage its balance sheet up to increase its returns. Given that the combined expected return is over 3% higher over the next five years it sure sounds like a better deal to me.

This is a good starting point for your research, so check each out and decide if one man’s trash might be your treasure.

Yahoo! Finance: Waste Management Industry News

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