Why Waste Management Earnings Are Stuck in Slow-Growth Mode

Waste Management (NYSE: WM  ) will release its quarterly report on Tuesday, and the recycling and trash-hauling giant has continued to post slow but steady price gains in its stock, as well as paying a sizable dividend. Yet for growth investors, Waste Management earnings lack the catalyst to drive the company to greater heights, leaving some wondering if the company is truly achieving its full potential.

Waste Management doesn't have the most glamorous business model, collecting money to haul garbage and then doing its best to make as much money as possible from it, whether through revenue from recycling sales or from innovative moves like landfill gas production and electrical generation from waste incineration. Yet its stock's fairly high valuation implies growth opportunities that aren't obvious to most investors. Let's take an early look at what's been happening with Waste Management over the past quarter and what we're likely to see in its quarterly report.

Stats on Waste Management

Analyst EPS Estimate

$0.55

Change From Year-Ago EPS

5.8%

Revenue Estimate

$3.55 billion

Change From Year-Ago Revenue

2.5%

Earnings Beats in Past Four Quarters

1

Source: Yahoo! Finance.

Will Waste Management earnings ever grow faster?
In another sign of how solid yet uninspiring Waste Management earnings are, analysts haven't budged on their estimates for either the company's June quarter or its 2013 or 2014 years' results. Still, investors can't complain about gains in the stock of about 9% since late April.

Waste Management has done a great job of taking what appears to be a very simple business and turning into a long-term moneymaker. Even though the company didn't manage to meet analysts' expectations in its first-quarter report, posting just 1% sales growth and an almost 2% decline in net income, Waste Management reaffirmed its full-year guidance on earnings and noted that cost-cutting measures had helped it boost its cash flow higher.

Waste Management has also sought to expand its business wherever possible, taking advantage of new opportunities both to grow and to make its operations more efficient. For instance, collecting biogas and methane from its landfills doesn't just take advantage of an energy source that the company has already essentially paid for; it also gives it opportunities to cut costs by using that gas to fuel its collection trucks as well as giving it a side electricity-generation business that produces enough power to serve hundreds of thousands of homes.

What's most surprising about Waste Management is how long it has taken competitors to understand the gold mine involved in trash collection. Nevertheless, rival Republic Services (NYSE: RSG  ) and Canadian company Progressive Waste Solutions (NYSE: BIN  ) have made their own impressions in the space, and their collective efforts have put pressure on revenue sources like recycling sales.

The rise of niche companies also takes away some expansion potential from Waste Management. Waste Connections (NYSE: WCN  ) has increasingly focused on cleaning contaminated oil fields and drilling facilities as well as recovering oil from storage tanks, and that has helped the company build a name for itself that could potentially prevent Waste Management from competing effectively in the space. Similarly, with Nuverra Environmental's (NYSE: NES  ) success in providing water and wastewater treatment for energy producers, it'd be hard for Waste Management to make inroads in the energy sector.

In the Waste Management earnings report, see if the company gives any guidance on where it expects its best prospects for growth in the future. In all likelihood, though, Waste Management will stay on its steady upward track, and it'll be up to you to decide whether it's worth paying up for shares that offer stability and a dividend yield approaching 3.5%.

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