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Bull of the Day: Casella Waste Solutions (CWST)

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Many companies say they are working on cutting costs, and improving operations, but not all of them achieve their goals in a shorter time period than expected.  This is the case with our Bull of the Day, Casella Waste Solutions (CWST - Free Report) .  

This Zacks Rank #1 (Strong Buy) company is a regional, integrated solid waste services company that provides collection, transfer, disposal and recycling services, generates steam and manufactures finished products utilizing recyclable materials primarily throughout the eastern portion of the United States and parts of Canada. The Company also markets recyclable metals, aluminum, plastics, paper and corrugated cardboard all processed at its facilities and recyclables purchased from third parties.

Earnings Data

In the second quarter 2016, Casella Waste saw year over year improvements in Revenues (+0.6%), Operating Income (+37.5%), and was able to decrease Cost of operations by -3.6%.

Casella Waste announces Q3 16 earnings on November 3 after the markets close.  Leading up to the earnings announcement, on 9/26, management made two big announcements.  First, management stated that they planned a debt refinancing, which looks to save about $11-$12 million in annual interest expenses.  Second management increased FY 2016 EBITDA guidance from a range between $113-116 million to a range between $115-117 million.  This is the second increase in EBITDA guidance in the last three months.  Management also reaffirmed revenue guidance for Q3 16 in the range of $550-$560 million.  

Management’s Take

According to John Casella, chairman and CEO, “We had another strong quarter as our team executed well against our key management strategies as the regional economy continued to strengthen.  Our results clearly demonstrated this improvement, with operating income up $4.2 million and margins up 290 bps year-over-year in the second quarter.

“Achievement of our strategies is clearly driving positive results, with residential and commercial collection pricing up 5.3% on our focused pricing programs.  Further, our efforts to reduce operating costs and drive efficiencies continue to gain traction across each line-of-business with cost of operations as a percentage of revenues down 290 bps year-over-year.  Recycling operating income was up $0.9 million year-over-year as our efforts to reshape the recycling business model has improved financial performance in these low commodity markets and helped to mitigate commodity risk.  Finally, we continue to expand profitable revenues through our innovative resource solutions offerings

Price and Consensus Graph

Due to the solid Q2 earnings, and subsequent increasing of their Q3 16 guidance, both the price of the stock and future earnings estimates have risen.

CASELLA WASTE Price and Consensus

CASELLA WASTE Price and Consensus | CASELLA WASTE Quote

Increasing Estimates

Earnings estimates over the past thirty days have increased for Q3 16, Q4 16, FY 16, and FY 17; Q3 16 rose from $0.08 to $0.10, Q4 16 improved from -$0.02 to $0.02, FY 16 jumped up from $$0.02 to $0.07, and FY 17 almost doubled from $0.15 to $0.27.

Bottom Line

As management continues to improve collection operations, refinance debt, optimize operations, and reduces costs in both driving and routs, margins continue to expand.  The recent update and increase in EBITDA guidance is a key indicator that management’s plans are bearing fruit earlier than expected.

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