Waste Management (WM) Q3 Earnings: Will It Beat Again?

Waste Management, Inc. (NYSE:WM) is scheduled to report third-quarter 2016 results before the opening bell on Oct 26. In the last reported quarter, adjusted earnings comfortably beat the Zacks Consensus Estimate by 3 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 4.22%.

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

Key Factors to Consider

Waste Management is executing well its initiatives to refocus on core business activities and instill price and cost discipline to achieve better margins. The company is working on improving customer retention by providing better service 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 growth. In order to generate adequate return on its capital investments in landfills, the company has implemented a wastewater management charge for customers that are not under contract.

The company has also taken steps to divest non-core operations and enhance focus on its high-growth-potential areas that will generate higher cash flows and boost the top line. Additionally, Waste Management expects yield momentum to continue in the company’s solid waste lines of business in the forthcoming quarters.

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 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%.

Zacks Rank: Waste Management’s Zacks Rank #2 when combined with 0.00% ESP makes an earnings prediction uncertain. Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) 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:

Amazon.com, Inc. (NASDAQ:AMZN) , with an Earnings ESP of +10.47% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Navigant Consulting Inc. (NYSE:NCI) , with an Earnings ESP of +6.90% and a Zacks Rank #3.

MarketAxess Holdings, Inc. (NASDAQ:MKTX) , with an Earnings ESP of +1.30% and a Zacks Rank #3.

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