What's in Store for Republic Services (RSG) in Q4 Earnings?

Premier waste management firm Republic Services, Inc.RSG is scheduled to report fourth-quarter 2016 results after the closing bell on Feb 16.

In the last reported quarter, adjusted earnings of the company beat the Zacks Consensus Estimate by 4 cents. Over the trailing four quarters, the stock beat estimates thrice with an average positive surprise of 2.77%.

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

Key Factors to Consider

Republic Services is currently focusing on increasing its operational efficiency by converting its fleet to compressed natural gas collection vehicles and modifying rear-loading trucks to automated-side loaders, which will reduce costs and improve profitability. The company is realigning its field support functions by combining two organizational layers, and expects these initiatives to contribute approximately $25 million of annual cost savings from 2018.

As part of the realignment program, the company has centralized the management structure for recycling operations. The new organizational structure is likely to ensure a clear ownership for the recycling and processing market vertical. Republic Services is also transitioning to a fee-based recycling processing model to cover processing costs and generate a healthy ROI (return on investments).

Furthermore, Republic Services continues to generate significant free cash flow, which is utilized for increased dividend payment, repurchasing shares and strategic acquisitions. Over the years, the company has returned significant cash to its shareholders as dividends or share repurchases. In addition, the company has also historically promulgated a conservative balance sheet with a healthy liquidity position.

However, margin pressure remains a bottleneck for the company. Margins are expected to remain constrained in the impending quarter as Republic Services has more exposure to Collection services and less to Disposal services. Typically, the Disposal services generate the highest margins and the Collection services generate the lowest. The company's performance is also likely to be hurt by protracted weakness in special waste, industrial volumes and tight municipal budgets. In addition, increased competitive pressure remains a cause of concern for the company.

Earnings Whispers

Our proven model does not conclusively show that Republic Services is likely to beat earnings this quarter as it lacks 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 .

Republic Services, Inc. Price and EPS Surprise

Republic Services, Inc. Price and EPS Surprise | Republic Services, Inc. Quote

Zacks Rank: Republic Services currently carries Zacks Rank #3. Although this increases the predictive power of ESP, the company's 0.00% ESP makes an earnings prediction uncertain.

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:

Cooper-Standard Holdings Inc.CPS with an Earnings ESP of +1.72% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here .

Dean Foods CompanyDF with an Earnings ESP of +2.44% and a Zacks Rank #3.

Hyatt Hotels CorporationH with an Earnings ESP of +12.50% 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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