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Waste Management (WM) Remains Focused on Core Businesses
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On Feb 28, Zacks Investment Research updated the research report on leading comprehensive waste management services provider Waste Management Inc. (WM - Free Report) .
Waste Management is executing well its initiatives to refocus on the core business activities and instill price and cost discipline to achieve better margins. The company aims to focus on improving customer retention by providing better service and higher value solutions. The acquisition of Deffenbaugh Disposal at an undisclosed price will further help the company to replace revenues lost from the divesture of Wheelabrator. At the same time, the transaction will enable Waste Management to extend its geographic footprint and foray into the attractive market of Kansas City, where it has limited presence. A steady stream of such accretive acquisitions is likely to drive earnings for the company in the future.
Waste Management is undertaking several steps to further boost its margins. The company's successful cost-reduction initiatives have also helped it in accomplishing remarkable gross margin expansion and EBITDA (earnings before interest, tax, depreciation and amortization) growth over the quarters. With strong yield, volume, and cost performance in fourth-quarter 2016, the company has offered a bullish guidance for 2017. 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. Such a bullish outlook raises investor confidence on the stock.
Furthermore, the company has a dominant market capitalization and a steady annual dividend policy. Waste Management plans to return significant cash to shareholders through healthy dividends and share repurchases in the future quarters as well. During the fourth 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. These initiatives will boost shareholders' returns in the long term.
With a diligent execution of operational plans, the stock outperformed the Zacks categorized Waste Removal Services industry in the last six months with an average return of 13.8% compared with 8.3% gain for the latter.
However, stringent government regulations are likely to contract margins as compliance with such regulations increases the operating costs for the company. In order to develop or operate a landfill or any waste management unit, facility permits and other governmental approvals are necessary. These permits and approvals are often difficult to obtain, time consuming and costly and could restrict its operations. All these are likely to impact the company’s profitability in the long term.
Nevertheless, we remain impressed with the solid growth prospects of this Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the industry include Republic Services, Inc. (RSG - Free Report) , Rollins, Inc. (ROL - Free Report) and Advanced Disposal Services, Inc. , each carrying Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Republic Services has a long-term earnings growth expectation of 9.8%. It has beaten earnings estimates thrice in the trailing four quarters for a positive surprise of 3.2%.
Rollins has beaten earnings estimates twice in the trailing four quarters for a positive surprise of 2.9%.
Advanced Disposal Services has beaten earnings estimates twice in the trailing four quarters for a positive surprise of 225%. It is currently trading at a forward P/E of 70.8x.
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Waste Management (WM) Remains Focused on Core Businesses
On Feb 28, Zacks Investment Research updated the research report on leading comprehensive waste management services provider Waste Management Inc. (WM - Free Report) .
Waste Management is executing well its initiatives to refocus on the core business activities and instill price and cost discipline to achieve better margins. The company aims to focus on improving customer retention by providing better service and higher value solutions. The acquisition of Deffenbaugh Disposal at an undisclosed price will further help the company to replace revenues lost from the divesture of Wheelabrator. At the same time, the transaction will enable Waste Management to extend its geographic footprint and foray into the attractive market of Kansas City, where it has limited presence. A steady stream of such accretive acquisitions is likely to drive earnings for the company in the future.
Waste Management is undertaking several steps to further boost its margins. The company's successful cost-reduction initiatives have also helped it in accomplishing remarkable gross margin expansion and EBITDA (earnings before interest, tax, depreciation and amortization) growth over the quarters. With strong yield, volume, and cost performance in fourth-quarter 2016, the company has offered a bullish guidance for 2017. 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. Such a bullish outlook raises investor confidence on the stock.
Furthermore, the company has a dominant market capitalization and a steady annual dividend policy. Waste Management plans to return significant cash to shareholders through healthy dividends and share repurchases in the future quarters as well. During the fourth 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. These initiatives will boost shareholders' returns in the long term.
With a diligent execution of operational plans, the stock outperformed the Zacks categorized Waste Removal Services industry in the last six months with an average return of 13.8% compared with 8.3% gain for the latter.
However, stringent government regulations are likely to contract margins as compliance with such regulations increases the operating costs for the company. In order to develop or operate a landfill or any waste management unit, facility permits and other governmental approvals are necessary. These permits and approvals are often difficult to obtain, time consuming and costly and could restrict its operations. All these are likely to impact the company’s profitability in the long term.
Nevertheless, we remain impressed with the solid growth prospects of this Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the industry include Republic Services, Inc. (RSG - Free Report) , Rollins, Inc. (ROL - Free Report) and Advanced Disposal Services, Inc. , each carrying Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Republic Services has a long-term earnings growth expectation of 9.8%. It has beaten earnings estimates thrice in the trailing four quarters for a positive surprise of 3.2%.
Rollins has beaten earnings estimates twice in the trailing four quarters for a positive surprise of 2.9%.
Advanced Disposal Services has beaten earnings estimates twice in the trailing four quarters for a positive surprise of 225%. It is currently trading at a forward P/E of 70.8x.
A Full-Blown Technological Breakthrough in the Making
Zacks’ Aggressive Growth Strategist Brian Bolan explores autonomous cars in our latest Special Report, Driverless Cars: Your Roadmap to Mega-Profits Today. In addition to who will be selling them and how the auto industry will be impacted, Brian reveals 8 stocks with tremendous gain potential to feed off this phenomenon. Click to see the stocks right now >>