Waste Management Stock: A Stable Compounder at a Premium Valuation

There’s a certain appeal to simplicity in investing, specifically, in businesses that do not need constant reinvention to stay relevant. Waste Management (WM) is that kind of business. While the market seems fixated on growth-at-all-costs technology, I’ve been spending time on companies where long-term value is driven by wide moats and necessity.

WM does not dominate headlines. But this is a company that has demonstrated a disciplined strategy and has compounded quietly and consistently. Year after year, in good markets and bad, WM turns trash into wealth. Similar to Proctor and Gamble (write up found here), I am not claiming WM is a fast grower, but has the potential for stable, reliable growth over time.

After its announcement of the Stericycle acquisition representing an expansion into the healthcare space, the stock pulled back on the news as the market questioned the cost of the acquisition. The pullback, however, offered an opening to reexamine the business and to start a position. What I saw was a high-quality operator executing on a familiar formula: operational scale, pricing power, and strategic acquisitions.

High-quality businesses rarely come cheap, and right now, WM is no exception. Its current valuation looks stretched, but this is precisely the kind of company I’d be eager to buy at a more reasonable price.

Business Overview

Waste Management, Inc. (WM) is the leading integrated waste services company in North America. It offers a vertically integrated model of collection, transfer, recycling, and disposal services to residential, commercial, industrial, and municipal customers. Having end-to-end control is a strategic advantage. WM owns and operates 263 landfills, a network of hundreds of transfer and recycling stations, and the largest fleet of waste-collection trucks in the United States.

WM’s business is organized into four operating segments:

• Collection and Disposal (~92% of revenue): Core garbage collection, landfill operations, and transfer services.
• Recycling Processing and Sales: Processing and selling recyclables (e.g., paper, plastics).
• WM Renewable Energy: Converting landfill gas into renewable natural gas (RNG) and electricity.
• WM Healthcare Solutions: Regulated medical waste and secure information destruction, launched via the 2024 Stericycle acquisition.

Industry Landscape

While WM’s competitive advantages will be discussed in the next section, spending a moment on the industry is worthwhile since it underscores the business’s durable nature. Demand is non-discretionary. Garbage doesn’t stop during a recession. And importantly, landfills are increasingly scarce. The permitting processes for landfills has become increasingly difficult, slowed by regulatory scrutiny and “Not In My Backyard” (NIMBY) resistance. In fact, the number of active U.S. landfills has declined from over 10,000 in 1980 to fewer than 1,500 today. WM’s ability to secure, operate, and monetize landfill assets is a differentiator that most new entrants simply can’t replicate.

From 2024 to 2030, industry revenue is expected to grow at a 5.2% CAGR. From 2025 to 2034, that figure is forecast to rise to 8.2%, driven by rising urban populations, more stringent environmental regulation, and expanding waste volumes from e-commerce and healthcare sectors, per Grand View Research. This sets a tailwind for WM, but it also reinforces the idea that the company’s performance will be driven by operational execution more than by market expansion. 

The competitive landscape is narrow. Republic Services operates ~207 landfills and has a similar vertically integrated model. Waste Connections focuses on secondary and rural markets, with ~103 landfills. WM’s scale, density, and breadth position this company well relative to these peers as well as smaller, more localized competitors. 

Waste Management’s Competitive Advantages

WM’s wide moat stems from its landfill network, scale, and execution.

1. Landfill Ownership and Regulatory Barriers

At the core of WM’s defensibility is its ownership of 263 active landfills. As the number of landfills shrink, this network has become a rare and highly regulated asset base. Environmental assessments under the EPA’s Resource Conservation and Recovery Act (RCRA) and state-level permitting hurdles make replication nearly impossible. This scarcity gives WM durable pricing power.

2. Scale and Route Density

WM’s national presence enables route density that reduces operating costs. This means fewer miles per pickup translates to lower fuel, labor, and maintenance expenses. This operational efficiency supports stable ∼30% EBITDA margins in its Collection and Disposal segment.

3. Vertical Integration and Operational Control

Unlike many peers, WM controls nearly every step of the waste lifecycle from pickup to landfill to energy extraction. This vertical integration reduces dependency on third parties and gives WM more control over cost, service quality, and capital allocation.

4. Technology and Automation

WM has made investments in automation, routing software, and customer platforms. By streamlining operations, WM can control and reduce SG&A, and improve customer retention.

5. Contractual Revenue and Customer Stickiness

WM’s contracts with municipalities and businesses typically last 3-5 years providing predictable, recurring revenue. With churn at just 9% in Q1 2025, WM’s reliability and scale help lock in customers and insulate performance from market shocks.

WM’s advantage lies in its scale across various elements of its model. Taken together, they form a solid, defensible moat. Let’s take a look at how these advantages have translated into performance.

A Look at the Financial Engine

Waste Management’s financial performance from 2016 to 2024 reflects a business with strong fundamentals as well as a proven operating model. Here’s what stands out over that period:

• Revenue Growth: Total revenue increased from $13.61 billion in 2016 to $22.06 billion in 2024, a compound annual growth rate (CAGR) of 6.2%. This includes a brief COVID-related dip in 2020, followed by a strong rebound in 2021 of +18% and +10% growth in 2022.
• Profitability: EBITDA margins grew from ~27% to nearly 30%.
• Capital Allocation: ROIC declined from over 15% pre-2020 to 12.3% in 2024, driven primarily by increased leverage from acquisitions.
• Leverage: Total debt rose from $13.8 billion in 2020 to $23.9 billion in 2024, pushing net leverage to 3.58x.
• Capital Returns: WM returned ~$8.5 billion in dividends (current dividend yields ~1.3%) and ~$10.2 billion in share repurchases, reducing shares from ~441M in 2016 to ~404M in 2024.

Following this financial overview, the segment performance table gives us a more detailed look at how each part of the business contributes to profitability. From there, we can explore what’s driving growth, and what is holding certain segments back.

Table: WM Operating Segments Financial Performance (2022 vs. 2024)

Margin declines in Recycling Processing and Sales, which processes paper and plastics, and WM Renewable Energy, converting landfill gas to RNG, reflect commodity price swings.

These fluctuations contrast with the stable margins of WM’s core Collection and Disposal business.

Zooming Out: What’s Driven Growth and What Will Sustain It

To understand how WM compounds value, we need to zoom out (relative to the table above). The financial engine we’ve seen over the past decade has been powered by four key drivers and will continue to shape its trajectory:

1. Pricing Power

From 2016–2024, price increases in WM’s core business averaged 4–5% annually, including 6.5% in Q1 2025. These hikes consistently offset inflation and any volume softness allowing WM to grow margins and more recently sustain ~30% EBITDA margins in Collection and Disposal. 

Going forward, management expects 5–6% revenue growth in this segment which will be driven by steady pricing, low churn (9% in Q1 2025), and disciplined contract management. This means that they expect little reliance on volume growth.

2. Acquisitions

Scale has been built through more than 100 deals from 1998–2009. Recent large acquisitions include the $4.6B Advanced Disposal acquisition in 2020, and the $7.2B Stericycle deal in 2024. Advanced Disposal added ~73 landfills and 3 million customers, boosting revenue by ~10% in 2021–2022. Stericycle introduced regulated medical waste and secure information destruction, contributing ~10% of Q1 2025 revenue (~$2.4B annualized). 

Looking forward, Stericycle is expected to grow 4–5% annually, deliver $250 million in synergies by 2027, and reach 30–31% EBITDA margins. Management also expects to increase the amount spent on tuck-in acquisitions to $300–$500M annually which should sustain 1–2% growth.

3. Operational Efficiency

WM’s route density and automation programs have been critical levers. Headcount reductions including ~2,600 roles cut by Q1 2025 have helped bring operating expenses down to 60.5% of revenue. While these efficiency gains have had impacts across WM business segments, they are expected to improve Healthcare Solutions margins from 15.1% to ~20–25% by 2027, despite integration costs remaining a short-term drag.

4. Sustainability and RNG

Though smaller in size, WM’s Renewable Energy and Recycling segments are strategically important. Renewable Energy revenue rose to $318M in 2024 with 44.7% margins, despite commodity volatility. After adding 4 new facilities as of Q4 2024, the segment is targeting $740M in EBITDA by 2026. These efforts align with long-term regulatory trends like the Renewable Fuel Standard and reinforce WM’s ESG positioning.

Together, these drivers have supported a ~6% revenue CAGR and are expected to sustain growth through 2034. This should support continued capital returns including the ~$1.2 billion in dividends and $1 billion in repurchases planned for 2025.

Valuation: What’s Priced In

While we are not looking for deep value in quality names like WM, a fair price will significantly improve the compounding results on long-term returns. 

My DCF model estimates an intrinsic value of $194 per share, about ~14% below the current trading price of ~$225. Here is what the model assumes:

• ~7% Revenue CAGR (2025–2034): This reflects 16% growth in 2025 as a result of the Stericycle acquisition, increased pricing and impact of tuck-in acquisition. Growth then tapers to align with historical growth (~6%) and industry growth expectations (5.2%).
• EBITDA Margin (~29.2% in 2025): Aligns with WM’s $7,450M–$7,650M guidance, then scaling to ~29.8% by 2029, driven by Stericycle synergies (30–31% by 2028 per management’s expectations). 
• CapEx at 13% of Sales (2025): Slightly above WM’s 2025 guidance ($3,175–$3,275M), tapering to 10.5% by 2034 as sustainability spending eases 
• 7.25% Discount Rate: Slightly above 6.8% WACC, adjusted to reflect expected reduction in debt levels and Stericycle integration risk.
• 2.5% Terminal Growth Rate: Consistent with industry maturity.

These are fair, even slightly generous assumptions suggesting high-single digit FCF through 2034. Yet the model yields a modestly overvalued business. This suggests that optimism is priced in WM stock.

Sensitivity analysis shows a $163–$266 range based on changes in terminal assumptions:

WM trades at ~30x forward P/E and 15x EV/EBITDA which is above its historical ~27x P/E and ~14x EV/EBITDA, though slightly below peers like Republic Services trading at 35x and Waste Connections at ~36x. 

So what are you paying for?

You’re paying for stability and an element of certainty. Specifically, that Stericycle’s $250 million in synergies will be realized on time, that $740 million in sustainability EBITDA will show up by 2026, and that margins will not just hold but expand. In short, the market is pricing in solid execution. 

Risks

But even stable compounders face risks and nothing is certain. For WM, there are a few risks that could derail the estimates expressed:

• Stericycle Integration: The most immediate challenge is executing the Stericycle acquisition. Large deals bring complexity. If the expected $250 million in synergies don’t materialize on schedule, margin expansion and free cash flow growth could be at risk.
• Leverage and Interest Expense: After this acquisition, WM’s leverage has climbed to 3.58x Net Debt/EBITDA. While management plans to reduce leverage, disciplined execution is required.
• Commodity Sensitivity: Revenue and margins in Renewable Energy and Recycling are sensitive to commodity price volatility. Again, these are smaller businesses for WM, but these segments are strategically important to the long-term growth narrative.
• Regulatory Pressures: Developments around methane emissions and PFAS legislation may pressure margins or require higher capital investment.

The good news is that WM has a track record of navigating headwinds. Its scale, vertical integration, and pricing power give it room to adapt while continuing to compound.

Final Thoughts

WM is a business I want to own. But it’s not a business I want to chase. It’s a high-quality company with a durable moat, predictable growth, and a long runway for reinvestment.

As of this writing, the stock is down nearly 4% on news of a China/US trade deal, suggesting that the market bid the stock up as a safe haven. While this pullback is notable, the stock still trades above its historical multiples.

Rather than trying to time the perfect entry, I prefer to leg into positions like WM over time.  

But the point is, WM’s moat is real. Its growth offers visibility. And its ability to compound over time is clear. But the market already seems to know that, and the stock is not cheap.

Again, if Stericycle delivers on its synergy targets, if sustainability investments scale on time, and if free cash flow compounds as expected, then today’s price might prove fair. But that’s a lot of ifs. And with a business priced for near-flawless execution, patience may be rewarded.

Disclosure: I have a long equity position in Waste Management, Inc.