Waste Management: The Business of Turning Trash into Treasure.

Waste Management is the largest provider of waste collection, disposal, recycling, and environmental services in North America, operating a vast network of landfills, recycling facilities, and renewable energy projects. The company combines essential services with strong operational discipline, technological innovation, and a growing focus on sustainability. With strategic investments in recycling, renewable natural gas, and healthcare waste management through its recent acquisition of Stericycle, Waste Management is positioning itself for continued growth in a changing world. The question remains: Does this resilient industry leader deserve a place in your portfolio?

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The Business

Waste Management, founded in 1969, is North America’s leading provider of comprehensive waste management and environmental services, operating across the United States and Canada. Headquartered in Houston, Texas, the company manages and reduces waste at each stage from collection to disposal while recovering valuable resources and creating clean, renewable energy. Its business is organized into five segments: Collection and Disposal, Recycling Processing and Sales, WM Renewable Energy, WM Healthcare Solutions, and Corporate & Other. Collection and Disposal is the largest segment, responsible for picking up, transporting, and disposing of waste and recyclables. The Recycling Processing and Sales segment involves separating and selling recyclable materials. The WM Renewable Energy segment converts landfill gas into renewable energy sources such as renewable natural gas and electricity. WM Healthcare Solutions, added through the acquisition of Stericycle, provides regulated medical waste disposal and secure information destruction services. Corporate & Other includes investments in technologies and businesses that complement the core operations. Waste Management operates the largest network in the industry, including 431 collection operations, 381 transfer stations, and 286 active landfill sites. This unmatched scale gives the company a dominant reach across North America. Waste Management’s competitive moat is rooted in its extensive infrastructure, high regulatory barriers, vertical integration, operational efficiencies, and ability to invest in technology. Its ownership of the largest network of landfills provides strong pricing power because opening new disposal facilities is extremely difficult due to strict permitting requirements. The company's vertical integration - collecting, transferring, and disposing of waste internally - improves margins and service efficiency. Its scale enables investments in automation, alternative-fuel trucks, and routing technology that smaller competitors cannot match, reducing costs and addressing labor challenges more effectively. As a result, WM enjoys strong recurring cash flows, resilience through economic cycles, and a leadership position that is difficult for new entrants to challenge.

Management

James C. Fish, Jr. is the CEO of Waste Management, a position he has held since 2016 after a long career within the company. He originally joined Waste Management in 2001 and served in a variety of leadership roles across finance, operations, and business development, including Senior Vice President for the Eastern Group, Area Vice President for the Pennsylvania and West Virginia market area, and Chief Financial Officer. Prior to joining Waste Management, James Fish held finance and revenue management positions at Westex, Trans World Airlines, and America West Airlines, and began his professional career at KPMG Peat Marwick as an auditor. He holds a Bachelor of Science in Accounting from Arizona State University and an MBA in Finance from the University of Chicago Booth School of Business. He is also a certified public accountant. Since assuming the CEO role, James Fish has been instrumental in advancing Waste Management’s growth strategy, emphasizing operational efficiency, disciplined capital allocation, and strategic expansion into adjacent environmental services such as renewable energy and healthcare waste management. Under his leadership, the company has strengthened its sustainability initiatives and invested heavily in automation and technology to drive long-term operational excellence. Throughout his tenure, James Fish has been recognized for his deep industry knowledge, financial acumen, and steady leadership style, which have earned him strong support from employees, customers, and investors alike. According to Comparably, he has a CEO approval rating of 71/100, placing him in the top 35% of companies of similar size. Internally, James Fish is respected for his transparent communication and his pragmatic approach to leadership, particularly during periods of industry transformation. He has emphasized the importance of scaling innovation and maintaining Waste Management’s leadership position amid changing environmental and regulatory landscapes. Given his extensive experience both within the company and the broader environmental services industry, combined with a proven ability to deliver shareholder value, James Fish is widely regarded as the right person to lead Waste Management into its next phase of sustainable growth and operational excellence.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Waste Management has achieved a ROIC above 10% in nine out of the past ten years, with the pandemic year of 2020 being the only exception. ROIC decreased slightly in 2024, primarily due to the acquisition of Stericycle and substantial investments in sustainability initiatives, such as renewable natural gas and recycling facilities. These investments have increased the capital base but have not yet fully contributed to operating income, resulting in a temporary dip in ROIC. Given the nature of these investments and their expected future returns, I do not view the recent decline as a concern. As these projects begin to contribute more meaningfully to operating income, I expect Waste Management’s ROIC to improve.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. The equity has been relatively stable over the past decade, with years of small increases or small decreases. There was a large increase in 2024, and a major reason for that was the acquisition of Stericycle. In a large acquisition like this, the balance sheet expands because Waste Management takes on new assets, such as Stericycle’s operations, facilities, and customer contracts. While acquisitions can temporarily impact returns like ROIC, the expansion of the asset base strengthens the company’s foundation for future growth. It reflects Waste Management’s strategy of building long-term value for shareholders, even if the full benefits of the acquisition may take some time to be reflected in the operating results.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins offer a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. It is not surprising to note that Waste Management has consistently generated positive free cash flow every year for the past ten years. Free cash flow increased in 2024 and reached the second-highest level ever, although the levered free cash flow margin remains well below historical highs. The reason for this is that Waste Management has significantly increased capital expenditures over the past three years, driven by substantial investments in sustainability initiatives such as renewable natural gas and recycling facilities, as well as the acquisition of Stericycle in 2024. Hence, the lower levered free cash flow margin does not concern me, as it should improve once these investments begin to contribute more meaningfully to operating income. Management expects that free cash flow will reach an all-time high of $2,725 billion in 2025 despite continued elevated capital expenditures. The company uses free cash flow to invest in new opportunities that are expected to drive long-term growth at attractive returns, as well as to fund dividends. As free cash flow grows, investors can therefore expect continued dividend growth. The company also repurchases shares but has temporarily suspended the buyback program to prioritize paying down the debt accumulated from the Stericycle acquisition. The free cash flow yield is currently near a ten-year low, which indicates that the shares are trading at a premium valuation. However, we will revisit valuation later in the analysis.

Debt

Another important aspect to consider is the level of debt. It is crucial to determine if a business has manageable debt that can be repaid within a three-year period. We calculate this by dividing the total long-term debt by earnings. After analyzing Waste Management's financials, I found that the company has 8,1 years' worth of earnings in debt. This is significantly higher than the three-year threshold and should be monitored closely. Waste Management typically operates with a relatively high level of debt, but the current figure is elevated compared to historical norms due to the Stericycle acquisition. Management has stated that they are prioritizing debt repayment and have suspended share buybacks, which should help reduce debt over the coming year. Nonetheless, the high debt level is something that warrants continued attention.

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Risks

Regulations are a risk for Waste Management. The company operates in a heavily regulated industry, with federal, state, provincial, and local laws in the U.S., Canada, and other jurisdictions affecting nearly every part of its operations. These regulations govern environmental protection, health and safety, land use, transportation, and waste management practices, and compliance is costly. Significant portions of Waste Management’s capital expenditures are tied to meeting regulatory requirements, and the company must continuously invest in landfill engineering, gas capture, recycling facility upgrades, and vehicle emissions standards. New or changing regulations can raise costs or limit how the company operates. For example, the EPA is considering stricter rules to reduce methane emissions from landfills and to divert organic waste like food scraps away from landfill disposal. If these rules are implemented, Waste Management would likely need to spend more on landfill gas collection systems, rely less on landfill operations, and possibly adjust parts of its Renewable Energy business. Additionally, there is a growing regulatory focus on PFAS, a group of chemicals sometimes called "forever chemicals," which could require expensive testing, remediation, and changes to how landfills and wastewater sites are managed. Another trend is the increasing adoption of Extended Producer Responsibility (EPR) laws, which require manufacturers to fund the disposal or recycling of their products and packaging. If EPR rules become more widespread, they could reduce the volume of waste Waste Management handles and impact the profitability of its landfill and recycling businesses. On top of these risks, Waste Management must constantly apply for and renew a large number of operational permits to run its facilities. These permitting processes can be lengthy, costly, and subject to public or political opposition. Even after a permit is granted, it can be delayed, challenged, or revoked, potentially slowing expansion plans or increasing costs. In some cases, regulations could even force the early closure of landfills, leading to unexpected closure and cleanup costs.

Macroeconomic conditions are a risk for Waste Management. The company’s operations are sensitive to broader economic pressures, such as inflation, interest rates, labor market conditions, supply chain disruptions, and global trade dynamics. In recent years, inflation has raised the costs of goods and services Waste Management relies on, particularly in areas like labor, vehicle maintenance, subcontractor services, and equipment. While Waste Management attempts to recover rising costs through price increases, there is often a lag because many of its contracts are tied to annual price adjustments based on prior inflation rates. During periods of rapid inflation, this timing gap can compress margins and increase operating costs. Labor availability is also a challenge. Waste Management relies on a large workforce to operate its collection, disposal, and recycling businesses, and tight labor markets have driven up wages, overtime expenses, and training costs. If labor constraints persist, they could impact the company’s ability to service customers effectively and weigh on financial performance. Supply chain disruptions pose another risk. Although conditions have improved since the peak of the pandemic, the availability of critical assets - including trucks, parts, and specialized equipment - can still be affected by transportation bottlenecks, vendor issues, or global trade restrictions. For example, a port strike in late 2024 temporarily hurt recycling commodity prices and disrupted equipment deliveries, and future strikes or geopolitical tensions could create similar pressures. Commodity price volatility is another factor. Waste Management’s recycling business is partly exposed to fluctuations in commodity markets for materials like cardboard, paper, metals, and plastics. A global economic slowdown, tariffs, or new trade restrictions could depress commodity prices, reducing recycling revenues and adding uncertainty to cash flows. In addition to these general pressures, Waste Management has recently experienced softness in a key volume segment: industrial haul volumes. Management noted that the U.S. has been in a "quasi-industrial recession" over the past few quarters, and Waste Management’s industrial volumes have reflected that trend. Importantly, the company does not expect a major rebound in industrial volumes in 2025, which could continue to weigh on growth. Finally, because many of Waste Management’s contracts are multi-year agreements, sharp inflationary spikes or unexpected economic shocks could erode margins before price adjustments can take effect.

Competition is a risk for Waste Management. The environmental services industry is highly competitive across all areas of the company's operations, including waste collection, disposal, recycling, and newer sustainability-focused services. Waste Management competes with large national waste management companies, smaller regional and local firms, waste brokers, and operators of alternative disposal or recycling facilities. The company also faces competition from counties and municipalities that operate their own waste services and may have financial advantages such as access to tax revenues and tax-exempt financing. Competition can pressure Waste Management in several ways. First, some competitors may be willing to accept lower profit margins in order to grow their market share, undercutting Waste Management’s pricing. This can make it difficult for the company to maintain its pricing strategies, particularly in competitive bidding situations for national accounts, municipal contracts, and exclusive franchise agreements. Losing such contracts can negatively impact Waste Management’s revenue growth and margin expansion efforts. In addition, counties and municipalities may impose "flow control" measures, which require all waste generated within a jurisdiction to be sent to specified facilities, potentially limiting Waste Management’s access to certain markets or volumes. Operating costs, disposal fees, and collection charges vary by region, meaning that local market dynamics can intensify competition and erode pricing power in specific geographies. The company also faces competitive pressure as sustainability becomes a higher priority for customers. Some specialized competitors focus on niche areas such as renewable energy generation from waste streams or advanced recycling technologies. As customers increasingly seek environmentally friendly solutions, Waste Management must continue expanding its service offerings beyond traditional waste collection and disposal to remain competitive.

Reasons to invest

The core Collection and Disposal segment is a major reason to invest in Waste Management. This business forms the foundation of the company’s operations, generating stable, recurring revenue from essential services like waste collection, transportation, and landfill disposal. Demand for these services remains consistent across residential, commercial, and industrial markets, even during periods of broader economic weakness, providing Waste Management with a resilient and predictable cash flow base. In recent years, the Collection and Disposal business has delivered outstanding results, driven by a combination of disciplined pricing, cost management, and operational efficiency improvements. The company has successfully expanded margins within the segment through strategic price increases, cost optimization efforts, and the intentional shedding of lower-margin residential business. Management expects this momentum to continue going forward. A big reason for the segment’s strong performance is Waste Management’s smarter use of data and technology. The company has improved how it sets prices by using data to better understand the true cost of serving each customer, helping it protect its margins. At the same time, it has invested heavily in automating routes, improving how trucks are dispatched, and upgrading its fleet. These improvements have helped reduce labor and maintenance costs while also making service more reliable. Importantly, management has emphasized that the base Collection and Disposal business - often described internally as the “superstar” of the company’s results- has been growing faster than earlier targets set several years ago. This reflects the success of strategic execution across pricing, operations, and customer service. Given the essential nature of waste services, Waste Management’s leadership position in the industry, and the proven operational strength and margin improvement in its Collection and Disposal business, this core segment provides a compelling foundation for long-term shareholder value creation.

Recycling and renewable energy are important reasons to invest in Waste Management. The company is making significant investments in these areas to capture long-term growth opportunities tied to rising demand for sustainable waste solutions. Waste Management’s renewable natural gas (RNG) platform, which captures methane from landfills and converts it into pipeline-quality gas, has expanded meaningfully. In 2024, the company brought five new RNG facilities online and expects to bring most of its planned plants into operation by the end of 2025. These investments are positioned to meet the growing demand for RNG, which Waste Management projects could increase four to five times by 2030. Over time, management expects these projects to contribute meaningfully to operating EBITDA growth and to drive margin expansion within the renewable energy segment. At the same time, Waste Management has made major upgrades across its recycling network. In 2024, it completed automation projects at ten recycling facilities and expanded into two new markets. These upgrades are lowering operating costs, improving efficiency, and making the recycling business more competitive. Demand for recycled materials, especially plastics, is also expected to grow substantially in the years ahead. Waste Management’s investments are already helping it win new recycling contracts, particularly in markets like Canada, where enhanced capabilities have opened doors to additional customers and higher volumes. Both recycling and renewable energy projects not only strengthen Waste Management’s financial profile by creating new revenue streams and operational efficiencies, but they also align the company with broader ESG trends. As more customers prioritize sustainability, Waste Management’s leadership in these areas reinforces its competitive position and brand value. Management expects sustainability investments to contribute significantly to overall company growth over the next several years, providing a strong complement to the company’s core Collection and Disposal business.

The acquisition of Stericycle is an important reason to invest in Waste Management. Completed in late 2024, this transaction significantly expands Waste Management’s service offerings by adding leading platforms in medical waste disposal and secure information destruction. With the formation of the new WM Healthcare Solutions division, Waste Management can now serve hospitals, clinics, and businesses with regulated medical waste and secure document shredding services - markets expected to grow due to aging populations, increasing healthcare needs, and tighter regulatory requirements. Integration efforts are already progressing well. Management has doubled its synergy target to $250 million over three years, driven by cost savings in areas like sales optimization, administrative efficiencies, fleet management, and facility consolidation. Up to $100 million of these synergies are expected to be realized in 2025, with further improvements targeted in the years ahead. Beyond immediate cost savings, Waste Management sees a major long-term opportunity in cross-selling services. Many customer accounts where either Waste Management or Stericycle previously operated independently now offer new avenues for growth. Management has emphasized that cross-selling is not factored into the 2025 outlook but is expected to become a significant growth driver starting in 2026. Operationally, the acquisition also introduces better cost discipline and pricing sophistication to the former Stericycle business. Waste Management is bringing greater accountability to individual facilities and contracts, while applying the pricing strategies that have successfully strengthened its core waste operations. Importantly, Stericycle’s asset network and customer base are seen as strong strategic additions. The healthcare waste management market benefits from favorable regulatory trends and limited competition, creating an attractive, defensible growth opportunity. Over time, the Healthcare Solutions segment is expected to become a meaningful contributor to Waste Management’s overall growth, adding stability and diversification to the company’s business model.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 6,81, which is from the fiscal year 2024. I have selected a projected future EPS growth rate of 10%. Finbox expects EPS to grow by 10,4% in the next five years. Additionally, I have selected a projected future P/E ratio of 20, which is double the growth rate. This decision is based on Waste Management's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $87,32 We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Waste Management at a price of $43,66 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 5.390, and capital expenditures were 3.231. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 2.262 in our calculations. The tax provision was 713. We have 401,4 outstanding shares. Hence, the calculation will be as follows: (5.390 – 2.262 + 713) / 401,4 x 10 = $95,69 in Ten Cap price.

The final calculation is referred to as the Payback Time price. It is a calculation based on the free cash flow per share. With Waste Management's free cash flow per share at $5,38 and a growth rate of 10%, if you want to recoup your investment in 8 years, the Payback Time price is $67,68.

Conclusion

I find Waste Management to be an interesting company with strong management. The company has built a moat through its extensive infrastructure, high regulatory barriers, vertical integration, operational efficiencies, and ability to invest in technology. It has consistently achieved a high ROIC above 10% and just delivered its second-highest free cash flow ever in 2024. The levered free cash flow margin has decreased compared to previous heights, largely due to elevated capital expenditures. Regulations are a risk for Waste Management because the company operates in a highly regulated industry where changes in environmental, health, and waste management laws can increase costs, limit operations, or require expensive investments in new technology and infrastructure. Macroeconomic conditions are a risk because inflation, labor shortages, supply chain disruptions, and commodity price volatility can raise costs, strain operations, and compress margins, especially given the lag in price adjustments built into many of its contracts. Competition is a risk because Waste Management faces pressure from national, regional, and municipal competitors across waste collection, disposal, and recycling services, some of whom may accept lower margins to win contracts. Intense pricing competition, local market dynamics, and the growing demand for specialized sustainability solutions could challenge Waste Management’s ability to maintain its pricing power, margins, and market share. The core Collection and Disposal segment is a key reason to invest because it generates stable, recurring revenue from essential services with strong resilience even during economic downturns. Supported by disciplined pricing, cost optimization, and smart use of technology, the segment has consistently expanded margins and provides a solid foundation for long-term growth and shareholder value creation. Recycling and renewable energy are important reasons to invest because the company’s significant investments in these areas are creating new revenue streams, improving operational efficiency, and positioning it to benefit from rising demand for sustainable waste solutions. As renewable natural gas production and recycling capacity expand, these initiatives are expected to contribute meaningfully to future earnings growth. The acquisition of Stericycle is a reason to invest because it expands Waste Management into the growing healthcare waste and secure information destruction markets while unlocking substantial cost synergies and future cross-selling opportunities. Overall, I believe Waste Management is a great company, and buying shares at $153, which would offer a 20% discount to intrinsic value based on the Ten Cap price, would represent an attractive long-term investment opportunity.

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