WM's Lag: A Tactical Setup Ahead of Jan 28 Earnings

The setup is clear. Waste Management shares fell 1.42% to $215.97 on Wednesday, marking the second straight day of losses. More telling, the stock is now 10.97% below its 52-week high of $242.58 and has fallen by 2.02% in the past month. This underperformance is the tactical signal. The critical catalyst is the company's Q4 and full-year 2025 earnings release scheduled for January 28, 2026.

This isn't a fundamental breakdown. It's a classic pre-earnings mispricing. The stock is lagging the broader market, which itself saw modest declines. The recent dip is driven by sector rotation and the natural caution that precedes major financial events. The real story is in the numbers ahead. Analysts expect the company to post earnings of $2.02 per share for the quarter, a year-over-year growth of 3.06%. For the full year, the consensus points to earnings of $7.58 per share. The stock's recent pullback has created a potential disconnect between this near-term outlook and its current price.

The event on January 28th will either confirm the stock's temporary lag or accelerate it. For an event-driven strategist, the mispricing is the opportunity. The question is whether the market's pre-earnings jitters are overdone.

Assessing the Pre-Earnings Sentiment and Valuation

The recent dip in Waste Management shares is a direct reaction to a tangible operational miss. The company's third-quarter report showed revenue of $6.44 billion versus the $6.51 billion consensus, a clear shortfall that likely triggered the sell-off. While EPS came in at $1.98, just shy of the $2.01 estimate, the revenue miss is the more concerning signal for a growth story. This sets up a valuation question: does the current price of ~$219.71, implying a forward P/E of 29.59, fairly price in this stumble?

On one hand, the multiple looks elevated. At nearly 30 times next year's expected earnings, the stock trades at a premium to the industry average. This typically demands flawless execution and high growth visibility. The Q3 revenue miss introduces a note of caution that could justify a risk premium. Yet, the broader market context suggests the reaction may be overdone. The stock's decline has lagged the broader market's losses, indicating the sell-off is sector-specific and not a broad-based panic.

Institutional sentiment adds another layer. While overall ownership remains high at 80.40%, the move by a significant holder like Commonwealth Equity Services to trim its stake by 10% in Q3 is a red flag. Such actions by sophisticated investors often signal a reassessment of risk or a tactical rotation. It suggests some money is taking profits or hedging ahead of the upcoming earnings event.

The bottom line is a tension between a justified risk premium and an overreaction. The revenue miss warrants a valuation discount, but the forward P/E of 29.6x still implies strong confidence in the full-year trajectory. The market is essentially betting that the Q3 stumble is an outlier and that the consensus forecast for $7.51 in annual EPS is intact. For an event-driven setup, this creates a binary risk: if the January 28 earnings confirm the full-year outlook, the stock could re-rate higher. If they show the growth story is cooling, the premium multiple is vulnerable. The current price reflects this high-stakes wait-and-see.

The Earnings Setup: What to Watch for a Re-rating

The January 28 earnings report is the immediate catalyst that will determine if the stock's lag turns into a rebound. The market expects a solid quarter, with consensus calling for EPS of $1.95, up 14.71% year-over-year, and revenue of $6.38 billion, up 8.29% year-over-year. Beating these numbers would likely be seen as a positive surprise, but the real triggers for a re-rating lie in the forward view.

The first watchpoint is guidance for 2026. After the Q3 revenue miss, investors will scrutinize any update on the full-year outlook. The current consensus forecasts annual EPS of $7.51 and revenue of $25.27 billion. Management must either reaffirm or raise this guidance to justify the elevated forward P/E. A cut or a downbeat tone would validate the recent skepticism and likely pressure the stock further.

The second, more critical trigger is commentary on the drivers behind the Q3 stumble. The company cited cost inflation as a key factor in the revenue miss. In the coming report, management's discussion of pricing power will be pivotal. If they signal they can pass through costs without losing volume, it supports the growth narrative. If they acknowledge pricing pressure or volume softness, it confirms the operational headwinds that triggered the sell-off.

Finally, the dividend provides a tangible floor. With a yield of ~1.5% and a payout ratio of ~52%, the company has ample room to maintain the quarterly payment of $0.825. This stability is a positive, but it is not a catalyst for a re-rating on its own. The payout ratio leaves no immediate risk to the dividend, which is a baseline of safety.

The setup is binary. A beat on Q4 numbers combined with reaffirmed 2026 guidance and confident commentary on pricing power could spark a relief rally. Conversely, any guidance cut or acknowledgment of persistent cost pressures would likely deepen the sell-off. For an event-driven strategy, these are the specific metrics that will move the stock in the days following January 28.

Catalysts and Risks: The Path to the Next Move

The immediate path forward is defined by two sequential events: the earnings release on January 28 and the investor call the following day. These are the catalysts that will validate or invalidate the current valuation. The primary trigger for a re-rating is a positive surprise on guidance or a clearer path to revenue growth. The consensus price target sits at $249.18, implying a significant upside from recent levels. If management reaffirms or raises the full-year outlook and provides confidence on pricing power, the stock could see a relief rally toward that target.

The main risk to the thesis is continued operational pressure on pricing or costs. The Q3 revenue miss was directly tied to cost inflation. If the January 29 call acknowledges persistent headwinds or volume softness, it would confirm the stock's underperformance trend and likely pressure the premium forward multiple. The institutional sentiment adds a layer of caution; the recent trimming of a major stake by Commonwealth Equity Services suggests some sophisticated investors are hedging ahead of this event.

In practice, the setup is binary. A beat on Q4 numbers combined with confident guidance could spark a re-rating. Any guidance cut or downbeat tone would likely deepen the sell-off. For an event-driven strategist, this is the final step: the January 28 report and call will either close the gap between the stock's lag and its consensus value, or it will widen it. The current price reflects this high-stakes wait-and-see.