Waste Management (WM) Up 2.7% Since Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Waste Management, Inc. WM. Shares have added about 2.7% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Waste Management Misses Q4 Earnings, Beats Revenues

Waste Management reported strong fourth-quarter 2016 results with GAAP net income of $335 million or $0.75 per share, compared with $273 million or $0.61 per share in the year-ago quarter. The year-over-year increase in earnings was primarily attributable to higher revenues. However, the reported earnings missed the Zacks Consensus Estimate by $0.02.

For full year 2016, the company recorded GAAP earnings of $1,182 million or $2.65 per share compared with $753 million or $1.65 per share in 2015.

Quarter Details

Revenues for the reported quarter improved to $3,460 million from $3,246 million in the year-ago quarter. The year-over-year rise in revenues was driven by accretive acquisitions net of divestitures, and an increase in volume and yield in its collection and disposal business as well as the recycling business. Revenues exceeded the Zacks Consensus Estimate of $3,412 million. For full year 2016, the company recorded revenues of $13,609 million compared with $12,961 million in 2015.           

Internal revenue growth from yield (for collection and disposal operations) was 2.1% in the reported quarter. Traditional solid waste internal revenue growth from volume improved 170 basis points year over year to 1.7%. Total internal revenue growth from volume, which includes recycling and renewable energy, was 2.0% – up 290 basis points year over year. Core price (including price increases and fees, other than the company’s fuel surcharge, net of rollbacks) was 5.1% in the reported quarter, up from 4.3% in the fourth quarter of 2015. Average recycling commodity prices improved 31.6% year over year, while recycling volumes increased 2.4%.

Revenues from the company’s Collection business increased to $2,224 million in the reported quarter from $2,124 million in the year-ago quarter. Landfill revenues improved to $780 million from $745 million in the prior-year quarter. Recycling revenues increased to $338 million from $285 million, while Transfer revenues were up by $30 million to $378 million.

Balance Sheet & Cash Flow

Cash and cash equivalents at year-end 2016 were $32 million, while long-term debt (less current portion) of $8,893 million compared with the respective tallies of $39 million and $8,676 million.

Net cash from operating activities for 2016 was $2,960 million compared with $2,498 million in 2015. Capital expenditures in 2016 were $1,339 million, up from $1,233 million in the year-ago period.

Free cash flow was $387 million in fourth-quarter 2016, compared with $188 million in the year-earlier quarter, bringing the respective tallies for the years to $1,664 million and $1,410 million.

During the quarter, the company returned $180 million to its shareholders through dividend and $225 million through share repurchases. For 2017, the company intends to increase its annualized dividend to $1.70 per share.

2017 Guidance

With strong yield, volume, and cost performance, the company expects 2017 adjusted earnings in the range of $3.14 to $3.18 per share. Free cash flow is expected between $1.5 billion and $1.6 billion.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been two upward revisions for the current quarter compared to one downward. In the past month, the consensus estimate has also shifted upward by 10.1% due to these changes.

Waste Management, Inc. Price and Consensus

 

Waste Management, Inc. Price and Consensus | Waste Management, Inc. Quote

VGM Scores

At this time, Waste Management's stock has an average Growth Score of 'C', however its Momentum is doing a lot better with an 'A'. However, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.

Outlook

Estimates have been broadly trending upward for the stock. The magnitude of these revisions also looks promising. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.

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