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Can Waste Management (WM) Retain its Earnings Streak in Q4?

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Waste Management, Inc.WM is scheduled to report fourth-quarter 2016 results before the opening bell on Feb 16. In the last reported quarter, adjusted earnings comfortably beat the Zacks Consensus Estimate by 4 cents. Waste Management has a solid earnings surprise history, beating estimates on every occasion in the trailing four quarters for a positive average surprise of 4.77%.

Let's see how things are shaping up for this announcement.

Key Factors to Consider

During the to-be-reported quarter, Waste Management inked a Master Services Agreement with Empire Diversified Energy, Inc., which offers full-service solutions to the dynamic changing requirements of the Energy industry. Empire Diversified designs, manufactures and sells electric motor-powered off-road vehicles, zero-emission vehicles and related products. It is also working to reduce fly ash problems that exist in all major power plants across the world.

Under this joint venture, the companies will potentially provide CCR (Coal Combustion Residues) solutions to a number of power generating plants across the U.S. The collaboration will likely help Waste Management to boost its revenues.

At the same time, Waste Management is refocusing on its core business activities to instill price and cost discipline for better margins. The company is working on improving customer retention by providing better services and higher value solutions. The company has also taken prudent steps to divest non-core operations and focus on high-growth areas that will generate higher cash flows and boost the top line.

In addition, Waste Management's successful cost-reduction initiatives have helped it in accomplishing remarkable gross margin expansion and EBITDA (earnings before interest, tax, depreciation and amortization) growth. In order to generate adequate return on its capital investments in landfills, the company has implemented an additional wastewater management charge for customers. This is likely to augment its revenues further.

However, Waste Management's recycling operations process certain recyclable materials like fibers, aluminum and glass, all of which are subject to significant market price fluctuations. Decline in average recycling commodity prices and recycling volumes are headwinds, which can have a negative year-over-year impact on earnings.

The expiry of long-term power purchase agreements has made the company vulnerable to electricity price volatility. Also, stringent government regulations are likely to restrict operations and increase expenses related to compliance.

Earnings Whispers

Our proven model does not conclusively show that Waste Management is likely to beat earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at 0.00%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Waste Management, Inc. Price and EPS Surprise

Waste Management, Inc. Price and EPS Surprise | Waste Management, Inc. Quote

Zacks Rank: Waste Management has a Zacks Rank #3. While this increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Chesapeake Lodging Trust CHSP has an Earnings ESP of + 2.17% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

STAG Industrial, Inc. STAG has an Earnings ESP of +2.50% and a Zacks Rank #3.

Moody's Corporation MCO has an Earnings ESP of +3.57% and a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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