Monday, May 12, 2014

Investing in Waste Management Earnings Growth

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2014 has been very rough for a number of small and mid cap securities as bubble fears have plagued the space. In fact, the Russell 2000 is down close to 4.5% so far in 2014, including a roughly 5.4% loss in the last month alone.

However, while many small cap stocks have floundered in this environment, a few have been able to fight through the pessimism and prosper. A great example of this is the often-overlooked US Ecology (ECOL - Trend Report), a stock which has soared by over 25% so far in 2014.

ECOL in Focus

US Ecology is a Boise, Idaho based company that provides waste treatment, disposal, and recycling services, mostly in the Western United States, though it has branched out to Canada, Texas, and Michigan as well. The firm specializes in a variety of waste services including hazardous, industrial, and radioactive management.

As you might guess, this is a relatively ‘wide moat’ business that can be difficult to break into for many firms. This has allowed ECOL to prosper in a variety of market conditions, and makes it an interesting (and seemingly less risky) way for investors to tap into the small cap space.

This has really come in handy for investors so far in 2014, as the stock has easily outperformed its peers in the Russell 2000 on a YTD look. Yet while there have been big gains, investors have to be wondering if this trend can continue in the near term. We certainly think so, at least based on some positive earnings activity in the past few weeks.

ECOL Earnings

US Ecology has been a very solid performer at earnings season, as the company hasn’t missed earnings in several years. Its most recent report was particularly solid though, as the company crushed the Zacks Consensus of 34 cents a share, posting EPS of 44 cents, marking a surprise of 29.4%.

Thanks in part to this string of beats, as well a strong pipeline of upcoming projects, and many analysts are starting to think more favorably about ECOL’s short term earnings future. In fact, earnings estimates for next quarter, this year, and next year have all been universally revised upwards in the past two months.

The biggest jumps were seen in the current year and next year figures though, suggesting greater promise for the long term future of ECOL. The consensus for this year’s earnings has moved from $1.57/share a week ago to $1.75/share today. Meanwhile, for next year’s earnings, the consensus has moved from $1.73/share to $1.94/share in a week’s time, further underscoring the newfound bullishness on this company.

Still Room to Run?

Given this positive movement in terms of analysts’ estimates, there is still reason to believe that ECOL has room to move higher. Plus, since many other small caps are facing severe pain as of late, this could be a safer play in that market capitalization level for skittish investors.

It also doesn’t hurt that ECOL has earned itself a Zacks Rank #1 (Strong Buy) based on this positive earnings estimate revision activity, suggesting that the firm will continue to outperform. This is especially true since ECOL just saw its stock get upgraded to #1 territory within the past week, meaning that there is still time for investors to get on board this wide moat company that has proven it can easily beat estimates as well.

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