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Waste Management (WM) Up 7.2% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Waste Management (WM - Free Report) . Shares have added about 7.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Waste Management due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Waste Management Surpasses Q4 Earnings & Revenue Estimates

Waste Management reported better-than-expected fourth-quarter 2020 results.

Adjusted earnings (excluding 10 cents from non-recurring items) per share of $1.13 beat the Zacks Consensus Estimate by 5.6% but fell 5% year over year. Total revenues of $4.06 billion beat the consensus estimate by 2.2% and increased 5.8% year over year.

In the reported quarter, revenues increased $185 million in the company’s collection and disposal business primarily driven by $202 million in acquisition revenues and $79 million of growth from yield.

Quarterly Numbers in Detail

The Collection segment recorded revenues of $2.69 billion, up 4.3% from the prior-year quarter’s figure. Landfill segment’s top line declined marginally year over year to $960 million. Total revenues in the Transfer segment were up 6.5% to $493 million. Recycling segment revenues increased 28.3% to $308 million. Other businesses’ revenues totaled $479 million, up 16% year over year.

Adjusted operating EBITDA of $1.14 billion increased 4.1% from the year-ago quarter’s level. Adjusted operating EBITDA margin fell to 28.1% from 29.1% in the prior-year quarter.

Operating income came in at $654 million compared with $655 million in the year-ago quarter. Operating income margin declined to 16.2% from 17% in the year-ago quarter.

Waste Management exited the quarter 2020 with cash and cash equivalents of $553 million compared with $703 million at the end of the prior quarter. Long-term debt was $13.25 billion compared with $10.25 billion at the end of the prior quarter.

The company generated $753 million of cash from operating activities and capital expenditures were $394 million. Free cash flow was $1.22 billion. The company paid out dividends worth $231 million.

During the quarter, the company closed the sale of the assets required to be divested by the U.S. Department of Justice in connection with the Advanced Disposal acquisition to GFL Environmental. Proceeds from divestures were $865 million, with $856 million of this related to the divestitures to GFL Environmental.

2021 Outlook

Waste Management total revenue growth is expected between 10.75% and 11.25%. Combined internal revenue growth from yield and volume in the collection and disposal business is expected to between 4% and 4.5%, primarily driven by the company’s disciplined pricing programs. These are expected to result in core price of 4.0% or greater and yield of approximately 2.5%.

The company expects adjusted operating EBITDA in the range of $4.75 -$4.9 billion. Synergies from the complete acquisition of Advanced Disposal are included in this measure and are expected to between $50 million and $60 million in 2021.

Free cash flow is estimated in the range of $2.25-$2.35 billion. Capital expenditures are anticipated in the range of $1.78-$1.88 billion.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Waste Management has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Waste Management has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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