Waste Management is Tuesday's IBD Stock Of The Day after the company's solid Q1 earnings beat lifted WM stock briefly above a buy point.
The Houston-based waste-collection and recycling company posted adjusted EPS of $1.29, up 22% from a year ago and 15 cents ahead of estimates. Revenue grew 13% to $4.66 billion vs. estimates of $4.45 billion.
Collection volumes grew 3.6%, while Waste Management raised its core price by 7.3%.
"Waste Management's pricing power is a function of its wide economic moat," Morningstar analyst Brian Bernard wrote in a Feb. 3 note.
In its Feb. 2 earnings call, management reported customer churn at an all-time low. WM stock is down 1.4% since the start of the year, and has a 12-month gain of 23%.
Commenting on the outlook in an earnings statement, CEO Jim Fish said that Waste Management is on a path to "comfortably achieve our full-year guidance."
He noted that key leading indicators for the industry — such as special waste volumes, construction and demolition — and new business formation "point to continued strong economic activity and business performance for the balance of the year."
Automation And Renewable Natural Gas Investments
On Feb. 2, Waste Management announced a plan to invest $1.6 billion through 2025. Roughly half will go to expand its network of waste-based natural gas plants. Landfills produce methane gas from decomposing organic waste. Capturing and cleaning the biogas of nonmethane elements produces usable natural gas.
A portion of Waste Management's fleet of trucks is powered by compressed natural gas produced by company landfills.
The other half of its investment will go to automate recycling plants, which is part of a broader focus on automation. The company said on its Q4 earnings call that it plans to winnow out 5,000 to 7,000 jobs over the coming four years. Waste Management has about 48,000 employees now.
The recycling and natural gas efforts are among the reasons Waste Management is rebranding as WM, though it doesn't plan to change its corporate name.
Nasdaq Hits New Low As Tesla Dives; Microsoft, Google Headline Earnings
WM Stock
WM stock jumped 5.3% to 164.15 in Tuesday's stock market action. Early in the session, WM stock rose as high as 167.75, breaking above a 165.95 cup-with-handle buy point.
Despite giving back some gains later in the session, WM stock held above a downward-sloping trendline within the base's handle. Investors could use the break of that trendline as an early entry point.
However, investors should make all purchases in current market conditions with great care — and in small packages. Be sure to read IBD's The Big Picture column each day to get the latest on the stock market's prevailing trend and what it means for your trading decisions.
WM stock's relative strength line, the chart line that tracks a stock's progress vs. the S&P 500, is hitting a multiyear high. That provides a validation of market leadership.
The defensive waste-management industry group is broadly in favor. Republic Services and Waste Connections also rallied near buy points Tuesday and are showing relative strength.
