Why Waste Management Stock Is Surging Today

Key Points

• Waste Management beat Wall Street's sales and earnings targets for Q2.

• The company raised its full-year free-cash-flow target.

• While management lowered its sales target for the year, margins are coming in better than previously anticipated.

• 10 stocks we like better than Waste Management ›

Waste Management (NYSE: WM) stock is gaining ground Tuesday following the company's recent earnings report. Its share price was up 3.4% as of 10:45 a.m. ET and had been up as much as 5.4% earlier in the session.

Waste Management published its second-quarter results after the market closed yesterday and reported sales and earnings that came in ahead of Wall Street's targets. Following the strong quarter, the company also raised its full-year free-cash-flow (FCF) target.

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Waste Management rises on strong Q2 results

Waste Management posted non-GAAP (adjusted) earnings per share of $1.92 on revenue of $6.43 billion, topping the average analyst estimate's call for per-share earnings of $1.89 on revenue of $6.33 billion. Revenue was up roughly 19% year over year, with the company's acquisition of Stericycle being a major contributor to the growth. Adjusted earnings per share were up 5.5% year over year, and improvements for the business's collection and disposal segment helped the company notch a best-ever operating expense margin of 59.6%.

What's next for Waste Management?

Waste Management is now guiding for free cash flow to come in between $2.8 billion and $2.9 billion, a $125 million increase over the company's previous guidance range. On the other hand, the company lowered its full-year revenue target to between $25.28 billion and $25.48 billion -- down from its previous guidance for sales between $25.55 billion and $25.8 billion.

Management attributed the decline in sales guidance to some lower volumes in the collection and disposal segment as well as lower recycled commodity prices and the impact that's having on its recycling brokerage business. Despite the lowered sales target for the year, the company's recent margin improvements bode well for the long term.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool recommends Waste Management. The Motley Fool has a disclosure policy.