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Waste Management Poised for Growth on Strategic Initiatives

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Shares of Waste Management, Inc. (WM - Free Report) outperformed the Zacks categorized Waste Removal Services industry with an average return of 11.9% compared with 4.8% for the latter, over a period of 90 days. In addition, over the same time frame, earnings estimates for the current quarter increased 2.7%. This estimate trend was impacted by the company’s organic growth, which looks promising.The company also has a strong earnings surprise history, beating estimates on all occasions, over the trailing four quarters.

The company’s successful cost-reduction initiatives have helped it in accomplishing remarkable gross margin expansion and EBITDA (earnings before interest, taxes, and amortization) growth, over the quarters. It is undertaking several steps to further boost its margins. With strong yield, volume, and cost performance in the third quarter, the company revised its 2016 adjusted-earnings guidance to $2.91 per share, compared with the previous guidance of $2.83 to $2.86. Such a bullish outlook raises investor confidence on the stock.

One of the most important profitability metrics is Return on Equity (ROE). ROE reveals how much profit a company earned compared to the total amount of shareholder equity found on the balance sheet. Waste Management currently has a ROE of 21.71%, whereas the industry’s ROE is 8.55%. The favorable ROE acts as growth driver for the company.

The company has a dominant market capitalization and a steady annual dividend policy. Recently, it increased its quarterly dividend rate by 3.7% (from 41 cents to 42 cents per share).  Waste Management plans to return significant cash to shareholders through healthy dividends and share repurchases in the future as well. These initiatives will boost shareholders' returns in the long term.

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 spur the top line. Some time back, it inked an agreement to sell its Wheelabrator waste energy business to Energy Capital Partners for $1.94 billion. The proceeds from this divestiture will be utilized for lucrative acquisitions in its core businesses, which are likely to be accretive in order to create long-term shareholder value. Additionally, Waste Management expects yield momentum to continue in the company’s solid waste lines of business in the forthcoming quarters.

Waste Management currently carries a Zacks Rank #2 (Buy).

Other Stocks to Consider

Some other favorably ranked stocks in the industry include LifeLock, Inc. , WageWorks, Inc. and Verisk Analytics, Inc. (VRSK - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

LifeLock is currently trading at a forward P/E of 40.8x and has beaten estimates thrice over the trailing four quarters, for an average positive earnings surprise of 27.4%.

Verisk has a long-term earnings growth expectation of 11.6% and is currently trading at a forward P/E of 26.5x.

WageWorks has a long-term earnings growth expectation of 15.0% and is currently trading at a forward P/E of 80.5x.

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