Waste Management: The Business of Turning Trash into Treasure.

Waste Management is North America’s leading provider of waste management and environmental services and a dominant player in an industry built on essential, recurring demand. Through its unmatched network of collection routes, transfer stations, landfills, recycling facilities, renewable energy assets, and healthcare waste solutions, the company combines strong infrastructure advantages with stable cash flow generation and attractive long term growth opportunities. With continued investments in operational efficiency, recycling, renewable natural gas, and healthcare solutions, Waste Management aims to strengthen its leadership position while driving long term shareholder value. The question remains: Does this environmental services leader deserve a spot in your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.

For full disclosure, I should mention that I do not own any shares in Waste Management at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Waste Management, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Waste Management was founded in 1969 and has grown into North America’s leading provider of waste management and environmental services. Headquartered in Houston, Texas, the company operates across the United States and Canada and manages waste through every stage of the value chain, from collection and transfer to disposal, recycling, and renewable energy generation. This fully integrated structure allows Waste Management to control the entire waste stream, creating strong operational efficiency, high service reliability, and significant cost advantages. The company’s core business begins with waste collection, where it serves residential, commercial, industrial, and municipal customers through long-term service agreements and exclusive municipal contracts. These services generate highly recurring and recession-resilient revenues because waste collection is an essential service that remains necessary in virtually all economic environments. Once collected, waste is transported either directly to disposal sites or to transfer stations, where it is consolidated and compacted before being moved to landfills more efficiently. Waste Management operates one of the largest transfer station networks in North America, which helps reduce transportation costs and improves route economics. A defining part of Waste Management’s business model is its unmatched landfill network. The company owns or operates the largest network of landfills in North America, with more than 250 active landfill sites. These landfills are the backbone of the business because all waste management companies ultimately need access to disposal capacity. By owning this infrastructure, Waste Management can internalize disposal volumes from its own collection operations rather than paying third-party landfill operators. This significantly improves margins and cash flow generation while also allowing the company to earn tipping fees from third-party haulers that rely on its disposal sites. In addition to traditional waste disposal, Waste Management has evolved into a broader environmental solutions provider. The company is one of the leading recyclers in North America, handling materials such as paper, cardboard, plastic, glass, and metals through a large network of advanced recycling facilities. It has also invested heavily in renewable energy by capturing landfill gas produced during waste decomposition and converting it into renewable electricity and renewable natural gas. This gas is then sold externally or used to fuel parts of its own fleet, further enhancing efficiency and sustainability. More recently, the acquisition of Stericycle has expanded Waste Management into medical waste, compliance services, and secure information destruction, giving it exposure to another attractive and highly regulated niche with strong long-term growth potential. Waste Management’s competitive moat is primarily built on its extensive infrastructure network, high regulatory barriers, vertical integration, scale advantages, and technological leadership. The most important part of this moat is its landfill network. Building a new landfill in North America is extremely difficult due to strict environmental regulations, lengthy permitting processes, substantial capital requirements, and local community opposition. This creates exceptionally high barriers to entry and gives existing landfill assets scarcity value. In many regions, Waste Management’s landfills effectively operate as local monopoly or oligopoly assets, providing strong pricing power and a durable cost advantage. Because competitors often have no economically viable alternative disposal sites nearby, they frequently must pay Waste Management tipping fees, which strengthens its economics even further. Another major competitive advantage is Waste Management’s route density and scale. Waste collection is a business where density matters enormously. The more customers serviced within a given geography, the lower the cost per pickup because trucks can collect more waste with fewer miles driven, lower fuel consumption, and better labor productivity. As the market leader, Waste Management enjoys superior route density in many regions, which smaller competitors struggle to match. This scale also gives the company stronger purchasing power for trucks, containers, automation systems, and fuel, lowering costs across the business. Its vertically integrated model further strengthens this moat by allowing Waste Management to capture value across the entire chain from pickup to final disposal and resource recovery. This internalization supports stronger margins and more consistent free cash flow generation. Technology increasingly reinforces Waste Management’s competitive position. The company uses data analytics, routing software, telematics, automation, and optical sorting systems to optimize collection routes, improve fleet utilization, reduce maintenance costs, and increase recycling efficiency. These investments improve service quality and reduce dependency on labor, which is particularly important in an industry facing ongoing labor shortages and rising wage costs. Smaller competitors often lack the scale and financial resources to make comparable investments at the same level. Taken together, Waste Management’s moat is built on infrastructure assets that are nearly impossible to replicate, a vertically integrated operating model, unmatched scale, and a growing technology and sustainability platform. This combination creates strong recurring cash flows, pricing power, and resilience through economic cycles, making Waste Management one of the most defensible business models in the industrial and environmental services space.

Management

James C. Fish, Jr. serves as the CEO of Waste Management, a role he assumed in 2016 after a long and distinguished career within the company. James Fish’s appointment reflected the board’s preference for a leader with deep operational knowledge of the waste and environmental services industry, as well as strong financial discipline. Having spent many years in senior leadership positions across both finance and operations, he brought a rare combination of strategic, financial, and executional expertise to the role, which has been central to Waste Management’s continued leadership in North America. Before becoming CEO, James Fish joined Waste Management in 2001 and held a broad range of leadership roles that gave him deep exposure to the company’s core business model. His previous positions included Senior Vice President for the Eastern Group, Area Vice President for the Pennsylvania and West Virginia market area, CFO, and Executive Vice President. These roles provided him with hands on experience across route operations, pricing, asset utilization, capital allocation, and financial planning. This internal progression is particularly important because Waste Management’s business depends heavily on operational excellence, route density, and disciplined infrastructure investments, areas where James Fish developed extensive expertise long before assuming the CEO position. Prior to joining Waste Management, James Fish held finance and revenue management roles at Westex, Trans World Airlines, and America West Airlines. He began his professional career at KPMG as an auditor, which helped build the strong accounting and financial foundation that has characterized his leadership style. He holds a Bachelor of Science in Accounting from Arizona State University and an MBA in Finance from University of Chicago Booth School of Business. He is also a certified public accountant, further reinforcing his reputation as a financially disciplined operator. Since becoming CEO, James Fish has played a major role in expanding Waste Management beyond its traditional waste collection and landfill operations into a broader environmental solutions platform. Under his leadership, the company has increased investments in automation, routing technology, fleet efficiency, recycling infrastructure, and renewable energy projects, particularly landfill gas to renewable natural gas. He has also overseen the strategic expansion into healthcare waste management and compliance services through the acquisition of Stericycle, which broadened Waste Management’s reach into another highly regulated and recurring service market. This reflects a leadership style focused not only on protecting the core moat but also on extending it into adjacent markets with similar characteristics such as high barriers to entry and stable recurring demand. A notable strength of James Fish’s leadership has been disciplined capital allocation. Waste Management is a capital intensive business where returns depend heavily on how effectively management allocates resources across fleet investments, landfill development, acquisitions, and shareholder returns. Under his tenure, the company has continued to generate strong free cash flow, maintain consistent dividend growth, and selectively repurchase shares while still investing for long term growth. This balance between reinvestment and shareholder returns is often a hallmark of high quality leadership in infrastructure based businesses. James Fish is also widely recognized for his focus on operational discipline and continuous improvement. He has consistently emphasized automation, labor efficiency, route optimization, and technology as key drivers of margin expansion. In an industry where small efficiency gains across thousands of trucks, routes, and disposal sites can materially improve profitability, this pragmatic and data driven leadership style has been particularly valuable. Given his deep company specific knowledge, strong financial background, and clear focus on long term value creation, James Fish appears exceptionally well suited to lead Waste Management. His leadership combines industry experience, capital discipline, and strategic expansion, all of which align closely with the company’s durable moat and long term growth ambitions.

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 historically generated strong and remarkably consistent ROIC, with returns above 10% in nearly every year shown and only a temporary dip to 9.0% in 2020. Looking at the development from 2016 to 2025, ROIC has ranged from 9.0% to 13.6%, which is very strong for a capital intensive infrastructure business. Unlike asset light companies that can produce very high returns with little capital, Waste Management operates in an industry that requires substantial ongoing investments in trucks, transfer stations, landfills, recycling facilities, and renewable energy assets. The fact that it still consistently generates returns around or above 10% is a strong sign of a high quality business model and a durable competitive moat. Several structural characteristics explain why Waste Management has been able to maintain ROIC at these levels for so many years. First, the company benefits from ownership of the largest landfill network in North America. These landfill assets are extremely difficult to replicate because of strict environmental regulation, long permitting processes, and local opposition. As a result, these assets have scarcity value and provide strong pricing power through tipping fees. Once a landfill is operational, incremental waste volumes can often be added at attractive margins, which helps support strong returns on the capital already invested. Second, Waste Management benefits from vertical integration across the entire waste value chain. The company collects waste, transfers it through its own stations, and disposes of it in its own landfills. This internalization allows Waste Management to keep economics that would otherwise go to third parties. Instead of paying another operator for disposal, it captures the profit at every step. This improves operating margins and supports consistently attractive ROIC. Third, route density is a major driver of ROIC. Waste collection is a scale business where density directly improves profitability. The more customers Waste Management serves in a local area, the lower the cost per pickup because trucks travel fewer miles per customer, fuel costs decline, and labor productivity improves. This route density advantage is difficult for smaller competitors to replicate and allows Waste Management to earn stronger operating profits on a relatively fixed asset base. Fourth, the business generates highly recurring and recession resilient revenue. Waste collection is an essential service that households, municipalities, hospitals, and businesses require regardless of economic conditions. This stability supports consistent earnings and helps keep ROIC from becoming overly cyclical. Even during 2020, when many businesses experienced severe profitability pressure, Waste Management’s ROIC only temporarily dipped below 10% before quickly recovering. The dip to 9,0% in 2020 was most likely driven by pandemic related disruptions, particularly lower commercial and industrial waste volumes as offices, restaurants, and businesses temporarily reduced activity. The quick recovery to 10,8% in 2021 and then back above 12,2% in 2022 and 13,0% in 2023 suggests that the decline was temporary rather than structural. The moderation to 11,8% in 2024 and 10,9% in 2025 still remains very healthy and may partly reflect increased investment in areas such as recycling automation, renewable energy infrastructure, and the integration of Stericycle, which naturally increases the invested capital base before the full earnings contribution is realized. Looking ahead, I believe Waste Management should be able to continue generating ROIC above 10%, although it may remain in the low double digit range rather than expand materially from here. The structural drivers remain firmly in place. The landfill network continues to provide pricing power, route density should keep supporting margins, and the company’s expansion into renewable energy and healthcare waste services could provide additional earnings streams. At the same time, because this is a capital intensive business, ongoing investments in fleet renewal, landfill development, recycling facilities, and technology will keep the capital base growing. This may cap upside to ROIC somewhat, but it should also support durable long term growth. Overall, a business that can consistently earn around 11% to 13% on capital in such an asset heavy industry is, in my view, a strong indication of a durable moat and high quality management execution.

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. Waste Management’s equity has shown some fluctuations over the past decade, with a few years of declines, but the overall trend is clearly positive. Equity has increased from 5.320 in 2016 to 9.991 in 2025, which means that despite temporary setbacks along the way, the value created for shareholders has almost doubled over the period. This is an important sign that the company has continued to compound value over time, even while returning significant amounts of cash to shareholders. The years with declines, such as 2016, 2021, and 2022, are not necessarily signs of weakness in the underlying business. In Waste Management’s case, these declines are often explained by capital allocation decisions rather than deterioration in operations. One of the biggest reasons equity can fall in a given year is share repurchases. Waste Management has a long history of returning excess cash to shareholders through buybacks and dividends. When the company repurchases its own shares, the cash used reduces equity on the balance sheet. This means equity can decline even if the business remains highly profitable and cash flow continues to grow. Another factor is larger acquisitions and investments. A large acquisition does not necessarily increase equity immediately. In many cases, it can actually reduce equity growth in the short term because the company uses cash or takes on debt to fund the purchase. However, over time, if the acquired business contributes higher earnings and cash flow, it can help equity grow faster in future years. This means that temporary pressure on equity after an acquisition does not necessarily reflect weaker fundamentals, but rather management’s decision to invest for long term growth. At the same time, the fact that equity is much higher in 2025 than in 2016 reflects the strength of Waste Management’s earnings power and consistent cash generation. The company operates an essential service business with recurring revenues and strong margins, which allows retained earnings to build over time. Even after paying dividends and buying back shares, Waste Management has generated enough profits over the decade to meaningfully increase shareholder value. This is exactly what we want to see in a high quality compounder. Importantly, because Waste Management is a mature business with strong free cash flow generation, I would not necessarily expect equity to rise in a perfectly straight line every year. Similar to other capital disciplined companies, management may at times prioritize buybacks, acquisitions, or infrastructure investments, which can cause temporary declines or slower growth in book value. What matters most is the long term trend, and here the trend is clearly attractive. Looking ahead, I believe equity should continue to grow over time, although there may still be occasional years with declines. Waste Management’s recurring cash flows, pricing power, and disciplined capital allocation support long term value creation. As long as the company continues to earn returns on capital above its cost of capital and maintains its balance between reinvestment and shareholder returns, the long term direction of equity should remain positive.

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. Waste Management has historically generated strong free cash flow and consistently solid free cash flow margins. Looking at the past decade, free cash flow has increased from 1.664 in 2016 to 2.816 in 2025, while the free cash flow margin has generally remained in a healthy range between roughly 9,9% and 13,6%. For a capital intensive business such as Waste Management, these are very strong numbers. One of the main reasons Waste Management has been able to maintain relatively high free cash flow margins is the nature of its business model. Waste collection and disposal is an essential service that households, businesses, hospitals, and municipalities need regardless of economic conditions. This creates highly recurring revenue and stable cash generation. Unlike many cyclical businesses, Waste Management does not depend heavily on consumer spending trends or short term economic confidence. People continue to generate waste in both good and difficult economic environments, which supports stable cash inflows. Another important reason is the company’s scale and route density. Because Waste Management serves a large number of customers within concentrated geographic areas, its trucks can collect waste more efficiently with fewer miles driven per customer. This helps keep fuel, labor, and maintenance costs under control. Once a route is established, adding additional customers can be highly profitable because the incremental cost is relatively low. This operating leverage helps support healthy free cash flow margins. The company’s ownership of its landfill and transfer station network is also a major driver. By disposing of much of its own collected waste internally, Waste Management avoids paying third parties and captures the economics across the full value chain. This vertical integration means more of the revenue ultimately turns into cash flow. In addition, the company earns tipping fees from third party haulers using its landfill network, which adds another high margin cash flow stream. The fluctuations in free cash flow over the decade are largely linked to the timing of investments. For example, 2021 stands out as a particularly strong year with free cash flow of 2.434 and a margin of 13,6%, while 2022 and 2023 were somewhat lower. This does not necessarily reflect weaker operations. In many cases, it simply means that Waste Management was investing more heavily in trucks, recycling facilities, renewable energy projects, automation, and acquisitions. These investments temporarily reduce free cash flow in the year they are made, but they are intended to support future earnings growth. The improvement in 2024 and especially 2025 is very encouraging. Management highlighted that strong operational performance translated into double digit growth in cash flow from operations and 30% growth in free cash flow. This suggests that previous investments are now beginning to contribute more meaningfully to profitability and cash generation. It also shows the strength of Waste Management’s operating model, where margin expansion and disciplined investment can lead to accelerating cash flow growth. Looking ahead, I believe strong free cash flow generation is likely to continue. Management expects free cash flow to grow by nearly 30% in 2026 at the midpoint, which indicates confidence that the business can convert more of its earnings into cash going forward. The structural drivers remain in place: recurring revenues, pricing power, route density, internal landfill usage, and continued efficiency improvements through automation and technology. While free cash flow margins may fluctuate from year to year depending on investment levels, I would expect them to remain strong over the long term. Waste Management mainly uses its free cash flow in three ways. First, it reinvests in the business through fleet upgrades, automation, recycling and renewable energy infrastructure, and selective acquisitions that strengthen its market position. Second, it returns a significant amount of cash to shareholders through dividends. The company has increased its dividend for 23 consecutive years, which is a strong sign of both stability and management confidence. Third, Waste Management uses free cash flow for share repurchases. Management has authorized a new 3 billion share buyback program and plans to return about 3,5 billion to shareholders through dividends and buybacks in 2026. This balanced approach between reinvestment and shareholder returns is, in my view, one of the strengths of the company’s capital allocation strategy. The free cash flow yield suggests that the shares are trading at a premium valuation. However, we will revisit the 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 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. This was a large strategic acquisition that temporarily increased the company’s debt level. Management has already made debt reduction a clear priority and stated that they repaid $1 billion of debt in 2025 alone. They also expect the debt level to move back toward their preferred range during 2026. This is encouraging because it shows that the elevated debt is not being ignored but is part of a clear plan following the acquisition. Given Waste Management’s highly recurring cash flows and strong free cash flow generation, the company is in a good position to gradually bring debt down over the coming years. Nonetheless, the current debt level remains above my preferred threshold and is something that warrants continued attention.

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Risks

Regulations is a risk for Waste Management because the company operates in one of the most heavily regulated industries in North America. Almost every part of the business is affected by rules from federal, state, provincial, and local authorities. These regulations cover areas such as environmental protection, landfill operations, air emissions, water quality, transportation, worker safety, medical waste handling, and recycling standards. Because Waste Management owns and operates landfills, transfer stations, recycling facilities, renewable energy assets, and medical waste sites, the company must continuously comply with a wide range of rules that can change over time. One of the main risks is that new regulations can increase costs. A large part of Waste Management’s annual investments already goes toward meeting regulatory requirements. This includes spending on landfill liners, gas capture systems, emissions control equipment, water treatment, safety systems, and facility upgrades. If governments introduce stricter environmental rules, these costs can rise further. For example, regulators are increasingly focused on reducing methane emissions from landfills. Since methane is a key greenhouse gas, stricter rules could require Waste Management to invest more heavily in monitoring systems, gas collection infrastructure, and reporting requirements. While the company is already strong in landfill gas capture and renewable energy, tighter rules could still increase operating and capital costs. Another growing risk is regulation around PFAS, often referred to as “forever chemicals.” These substances have been used in many industrial and consumer products for decades and are receiving increasing regulatory attention due to potential health concerns. If stricter standards are introduced for landfill leachate, groundwater, or wastewater, Waste Management may need to spend significantly more on testing, treatment, and cleanup. This could become particularly costly because landfills may contain materials disposed of many years ago, meaning the company could face expenses related to historical waste rather than only current operations. Another important risk is extended producer responsibility laws, also known as EPR. These laws require manufacturers and packaging companies to help pay for the collection and recycling of their products after use. If these rules become more widespread, they could change how recycling programs are funded and managed. In some cases, this may reduce the amount of waste handled directly by Waste Management or put pressure on pricing and profitability in the recycling business.

Being unable to obtain or maintain required permits is a risk for Waste Management because the company depends on permits to operate many of its most important assets, including landfills, transfer stations, recycling facilities, renewable energy sites, and medical waste facilities. Without these permits, Waste Management cannot legally operate or expand these sites. Since much of the company’s competitive advantage comes from its large disposal and infrastructure network, any issues with permits can directly affect growth, profitability, and long term returns. One of the main reasons this is such an important risk is that permits for waste facilities are often difficult, expensive, and very time consuming to obtain. Building or expanding a landfill is not something that can be done quickly. These processes often require years of environmental reviews, zoning approvals, public hearings, and compliance checks before a permit is granted. Even when Waste Management eventually receives approval, the long timeline can delay expansion plans and increase costs. Public opposition is another major challenge. Facilities such as landfills and transfer stations are often unpopular with nearby communities. Residents, local politicians, and environmental groups may oppose new permits or expansions because of concerns around traffic, odors, noise, environmental impact, or property values. This can lead to delays, stricter operating conditions, or in some cases outright rejection of permits. Even existing permits can be challenged, which creates uncertainty around future operations. Land scarcity also makes this risk more important. In densely populated areas, especially near large cities, it can be extremely difficult to find suitable land for new facilities or for expanding existing landfill capacity. If Waste Management is unable to expand capacity close to its customers, it may need to transport waste over longer distances or use third party disposal options. This increases transportation costs and reduces the efficiency advantages that come from its integrated network. Another important point is that permit issues can slow down future growth projects. Waste Management continues to invest in recycling infrastructure, renewable energy facilities, and medical waste operations. All of these projects often require approvals and permits as well. If the company faces delays in receiving these approvals, it may postpone the earnings and cash flow benefits expected from these investments. In the worst case, the inability to obtain, renew, or expand permits could directly hurt both revenue and margins. If Waste Management cannot expand landfill capacity or is forced to close or restrict existing sites, it may lose disposal volumes and face higher costs by using alternative facilities. This is particularly important because landfills are among the company’s most profitable assets and a key part of its competitive moat.

Operational disruptions are a risk for Waste Management because the company’s business depends on thousands of employees, trucks, facilities, suppliers, and transportation links working efficiently every single day. Since waste collection and disposal is an essential service, even relatively small disruptions can quickly affect costs, service quality, and profitability. Unlike many other businesses, Waste Management cannot simply pause operations for a few days without consequences, as waste continues to be generated regardless of external conditions. One of the main risks is labor shortages and rising labor costs. Waste Management relies heavily on drivers, facility workers, maintenance staff, and operational employees across North America. If the company struggles to hire or retain enough workers, it may face route delays, lower service levels, and higher overtime costs. In addition, wage inflation can put pressure on margins, especially in areas where labor markets are tight. Because a large part of the workforce is hourly, increases in minimum wages or labor legislation can further increase costs. Labor disputes and strikes are another important risk. If unionized employees negotiate for higher wages and benefits or resist operational changes, this can increase costs and reduce flexibility. In a worst case scenario, strikes or work stoppages could temporarily disrupt collection routes and facility operations. Since Waste Management provides an essential service, prolonged labor disputes could hurt customer relationships and increase short term expenses. Inflation is another major risk. Rising costs for labor, repair and maintenance, subcontractors, fuel, and equipment can put pressure on profitability. While Waste Management can often pass through some of these costs through price increases, there is usually a timing lag. Many contracts include pricing mechanisms that adjust over time rather than immediately. This means that during periods of rapid inflation, costs can rise faster than prices, which temporarily compresses margins. Weather and major external events can also disrupt operations. Severe storms, hurricanes, wildfires, flooding, and other climate related events can damage facilities, delay routes, and increase repair and transportation costs. At the same time, these events can create unusual spikes in waste volumes from cleanup projects. While this can increase revenue, these projects often come with different margin profiles and higher operational complexity. This means results can fluctuate significantly from one period to another.

Reasons to invest

The core Collection and Disposal segment is a reason to invest in Waste Management because it forms the foundation of the entire business and provides stable, recurring, and highly resilient cash flows. This segment includes the collection of waste from residential, commercial, and industrial customers, the transportation of that waste through transfer stations, and the final disposal at landfills. Because waste collection is an essential service that households and businesses need regardless of economic conditions, demand remains highly consistent even during periods of broader economic weakness. This makes the segment one of the most dependable parts of Waste Management’s business and an important reason why the company is able to generate strong and predictable free cash flow over time. A major reason this segment is so attractive is the recurring nature of the revenue. Waste Management typically operates through multi year contracts with municipalities, businesses, and industrial customers. Residential contracts can often run for several years, while commercial customers frequently renew long term service agreements. This creates a highly visible revenue base and reduces earnings volatility. Unlike more cyclical industries, customers cannot simply stop producing waste during economic slowdowns, which makes the revenue stream far more resilient than many other industrial businesses. Another key reason to invest is the segment’s strong pricing power. Management has repeatedly highlighted that pricing continues to be a major driver of growth. By using data and analytics, Waste Management has become better at understanding the true cost of serving each customer and setting prices that reflect the premium value of its service and infrastructure network. Operational efficiency is another major strength of the Collection and Disposal segment. Waste Management has invested heavily in automation, route optimization, fleet upgrades, and dispatch technology. These investments help improve route density, reduce truck downtime, lower fuel and maintenance costs, and improve labor productivity. Management specifically noted that improvements in frontline retention and a younger truck fleet have reduced both labor and maintenance costs. This has supported margin expansion and helped the segment deliver some of its strongest operating leverage in recent years. An additional reason to invest is the company’s unmatched disposal and transfer network. Waste Management’s ownership of landfills and transfer stations creates a powerful network advantage. Waste collected by the company can be moved efficiently through its own system and disposed of internally, which improves profitability and reduces dependence on third parties. This internalization is a major reason why the Collection and Disposal segment continues to expand margins over time. The segment has also benefited from improved business mix. Management has intentionally reduced lower margin residential contracts while increasing higher margin landfill and commercial volumes. This strategy may reduce volume growth in the short term in certain categories, but it improves profitability and long term returns. In other words, Waste Management is focusing on quality of revenue rather than simply maximizing volume, which I view as a positive sign of disciplined management.

Recycling and renewable energy are reasons to invest in Waste Management because they provide attractive long term growth opportunities beyond the company’s traditional collection and landfill business while still building on the same core asset base. Waste Management already has a vast network of landfills, transfer stations, customer relationships, and waste volumes flowing through its system. This gives the company a strong foundation for expanding into higher growth areas such as recycling and renewable natural gas. Instead of relying only on collecting and disposing of waste, Waste Management can also extract more value from the materials it handles by turning recyclable items into saleable commodities and landfill gas into renewable energy. This creates additional revenue streams and improves the long term earning power of the business. One important reason these businesses are attractive is that they build on assets Waste Management already owns. In renewable energy, the company captures methane created by decomposing waste in its landfills and converts it into renewable natural gas or electricity. This means Waste Management is able to earn more from the same landfill assets that already support its core disposal business. In recycling, the company can use its collection network and customer relationships to feed more material into its recycling facilities. This makes both businesses strategically attractive because they are not completely separate from the core business. They strengthen the overall system and allow Waste Management to earn more from infrastructure it already controls. Another reason to invest is that management has already shown these businesses can contribute meaningfully to growth. In 2025, Waste Management commissioned seven new renewable natural gas facilities and continued to upgrade and expand its recycling network. Management also expects to complete six additional renewable natural gas plants and four additional recycling projects in 2026. This shows that these segments are not just long term ideas but active investment areas that are already scaling and contributing more to earnings. The renewable energy business is especially attractive because it tends to have strong economics. Management has emphasized that renewable natural gas projects offer very attractive payback periods, even if commodity prices and operating costs move around over time. That matters because it suggests these projects are not just good for sustainability messaging but are also financially compelling. In other words, renewable energy is becoming an increasingly important source of profitable growth for Waste Management rather than simply a side business. Recycling is also becoming a stronger business than many investors may assume. Traditionally, recycling has often been seen as more volatile because profits can be affected by commodity prices. However, Waste Management has been improving this business through automation, better sorting technology, and stronger pricing for the services it provides. In 2025, the recycling segment delivered more than 22% EBITDA growth despite significantly lower commodity prices, which suggests the underlying business is getting stronger and less dependent on favorable commodity markets alone.

Healthcare Solutions is a reason to invest in Waste Management because it expands the company beyond its traditional waste collection and disposal business into another highly recurring, regulated, and attractive market. Through the acquisition of Stericycle, Waste Management has built a strong position in medical waste disposal, compliance services, and secure document destruction. This broadens the company’s service offering and gives it access to long term growth trends linked to rising healthcare demand, stricter compliance requirements, and aging populations. One of the main reasons this business is attractive is the recurring nature of demand. Hospitals, clinics, laboratories, pharmacies, and other healthcare providers continuously generate regulated medical waste that must be collected, transported, treated, and disposed of safely. This makes the business highly resilient, much like Waste Management’s core collection and disposal segment. Healthcare providers cannot simply delay these services during weaker economic periods, which creates stable and predictable revenue streams. Another important reason to invest is the long term demographic growth outlook. Management has specifically highlighted that healthcare should be one of the strongest sectors to be in over the next 20 years because of aging populations. As populations age, healthcare utilization tends to increase, which should lead to higher volumes of medical waste and compliance services over time. This gives the segment a structural growth tailwind that complements the already stable nature of the business. Another reason to invest is the clear profitability improvement opportunity. Before the acquisition, this business was less efficient than Waste Management’s core operations. Since bringing it into the company, management has been focused on simplifying how the business runs, improving day to day execution, and making service more reliable. This has already helped lower costs and improve profitability. Importantly, management believes there is still meaningful room for further improvement as the business continues to benefit from Waste Management’s experience, technology, and operating processes. Cross selling is another attractive growth driver. Waste Management now has the ability to offer both traditional waste services and healthcare waste solutions to large customers, especially major hospital networks and healthcare systems. Management has specifically highlighted that many large customers have the same decision makers for both solid waste and medical waste services. This creates a strong value proposition because Waste Management can offer a broader, more integrated service package than many competitors. This should help drive market share gains and additional revenue growth over time.

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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 6,70, which is from the fiscal year 2025. I have selected a projected future EPS growth rate of 12%. Finbox expects EPS to grow by 12,4% in the next five years. Additionally, I have selected a projected future P/E ratio of 24, 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 $123,45 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 $61,72 (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 6.043, and capital expenditures were 3.227. 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 2.259 in our calculations. The tax provision was 717. We have 402,9 outstanding shares. Hence, the calculation will be as follows: (6.043 – 2.259 + 717) / 402,9 x 10 = $111,72 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 $6,99 and a growth rate of 10%, if you want to recoup your investment in 8 years, the Payback Time price is $96,29.

Conclusion

I find Waste Management to be an interesting company with strong management. The company has built its moat through its extensive infrastructure network, high regulatory barriers, vertical integration, scale advantages, and technological leadership. Considering the industry in which the company operates, it has consistently achieved a high ROIC, which is something I expect to continue moving forward. Waste Management also delivered its highest free cash flow ever in 2025, and free cash flow is expected to continue growing. Regulations are a risk for Waste Management because the company operates in a highly regulated industry where stricter environmental, safety, and waste handling rules can significantly increase costs and limit how the business operates. New requirements around methane emissions, PFAS, and recycling laws could lead to higher spending on compliance, testing, and facility upgrades, while also potentially affecting waste volumes and profitability in certain segments. Being unable to obtain or maintain required permits is another risk because permits are essential for operating and expanding its landfills, transfer stations, and other key facilities. Delays, public opposition, or rejected permits can increase costs, slow growth, and reduce the efficiency and profitability of its disposal network, which is one of the company’s most important competitive advantages. Operational disruptions are also a risk because the business depends on employees, trucks, facilities, and suppliers working smoothly every day to deliver essential waste services. Labor shortages, strikes, inflation, severe weather, or supply chain issues can increase costs, disrupt service quality, and temporarily pressure margins and profitability. The core Collection and Disposal segment is a major reason to invest because it provides stable, recurring, and recession resilient cash flows from essential waste services that customers need in all economic environments. Combined with strong pricing power, operational efficiency, and an unmatched landfill and transfer network, this segment forms the foundation of the company’s profitability and long term value creation. Recycling and renewable energy are also compelling reasons to invest because they create attractive long term growth opportunities by extracting more value from the company’s existing landfill and collection network. These businesses add new revenue streams, support earnings growth, and strengthen the long term profitability of the overall business while building on assets Waste Management already owns. Healthcare Solutions is another reason to invest because it adds a stable and recurring business with long term growth driven by rising healthcare demand and aging populations. Combined with improving profitability and cross selling opportunities with large healthcare customers, this segment has the potential to become an increasingly important driver of earnings and cash flow growth over time. I believe there are many things to like about Waste Management, and buying shares at $156, which gives a 30% discount to the intrinsic value based on the Ten Cap price, would be a good long term investment.

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