Waste Management, Inc (WM) is scheduled to report second-quarter 2014 results before the opening bell on Jul 29. In the last reported quarter, Waste Management’s earnings comfortably beat the Zacks Consensus Estimate by 4 cents. Let’s see how things are shaping up for this announcement.
Factors to Consider
Waste Management expects healthy yield improvement in its solid waste-line business with a decent yield momentum in the forthcoming quarters. The company expects to invest $100 million to $250 million on tuck-in acquisitions in traditional waste operations in 2014.
Recently, credit rating firm Moody’s also upgraded the rating for senior unsecured debt of the company by one notch to Baa2. The upgrade affects approximately $8.5 billion of the company’s debt. It reflects prudent capital discipline at Waste Management with reduced capital expenditure and optimal utilization of free cash flow to fund share repurchases.
However, the company expects volumes to be down due to lower national counts as they strive for improved margin growth and pricing. The pricing environment remains challenging and highly competitive due to aggressive bidding by smaller competitors. The company needs to improve margins on the recycling side through adjustment of rebates to reflect lower pricing and also needs to improve the quality of inbound material to improve profitability.
Earnings Whispers
Our proven model does not conclusively show that Waste Management will beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, #2 or #3 for this to happen. This is not the case here as you will see below.
Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is pegged at 0.00%. This is because both the Most Accurate estimate and Zacks Consensus Estimate currently stand at 59 cents.
Zacks Rank #2 (Buy): Waste Management’s Zacks Rank #2 (Buy) when combined with 0.00% ESP makes surprise prediction difficult.
We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stocks to Consider
Here are some companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat in the future.
Arch Capital Group Ltd. (ACGL) earnings ESP of +5.10% and Zacks Rank #2 (Buy).
ConocoPhillips (COP) earnings ESP of +1.90% and Zacks Rank #2 (Buy).
Clayton Williams Energy, Inc. (CWEI), earnings ESP of +4.46% and Zacks Rank #1. (Strong Buy).
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