Trash Talk: Why Waste Management’s (WM) Record Margins Matter
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Waste Management (WM) hit new milestones this quarter with record operating margins, proving that pricing power and operational efficiency still reign supreme in the waste industry. Our TrackStar data showed investors paying particularly close attention to Waste Management following its third quarter results, and for good reason. The company delivered an impressive 7.9% revenue growth, but more importantly, achieved a record 30.5% operating EBITDA margin. Here’s why this matters more than most realize. Waste Management’s Business Waste Management is North America’s leading environmental solutions provider, serving millions of residential, commercial, and industrial customers through the industry’s largest disposal network and collection fleet. The company operates an integrated network of landfills, transfer stations, recycling facilities, and renewable energy plants, providing comprehensive waste collection and disposal services while increasingly focusing on sustainability solutions. Waste Management segments its business into the following areas:
WM Renewable Energy (2% of total revenues) – Produces renewable natural gas and electricity from landfill gas |
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Waste Management’s third quarter showcased the company’s operational excellence, with revenue reaching $5.61 billion, driven by core price growth of 6.5% and strong landfill volumes. The company continues to invest heavily in automation and digital transformation to improve efficiency and reduce costs. They’ve completed 24 out of 39 planned recycling automation projects and brought three renewable natural gas facilities online. Moreover, Waste Management is set to close its acquisition of Stericycle in Q4 2024, a strategic move that will expand its presence in the growing healthcare waste management sector. Financials
Source: Stock Analysis Waste Management has demonstrated consistent financial strength over the past five years, with revenues growing from $14.5 billion in 2017 to $21.4 billion on a trailing twelve-month basis. This steady expansion reflects both organic growth and strategic acquisitions, culminating in the current quarter’s 7.9% year-over-year revenue increase to $5.6 billion. The company’s margin profile has also shown continuous improvement. Operating margins expanded from 18.1% in 2017 to 19.8% today, while EBITDA margins grew from 27.6% to 29.8%. The latest quarter’s record 30.5% operating EBITDA margin suggests this trend is accelerating rather than plateauing. Cash flow generation has been equally impressive. Annual free cash flow has grown from $1.7 billion in 2017 to $2.1 billion on a trailing twelve-month basis. The current quarter contributed $618 million to this total despite stepped-up investments in sustainability initiatives. This cash generation easily covers the 1.4% dividend yield and roughly similar annual share buyback. Valuation
Source: Seeking Alpha Waste Management trades at 28.7x forward earnings, presenting a more attractive multiple than Republic Services (RSG) at 33.4x and Waste Connections (WCN) at 37.3x. It also trades at a more attractive price-to-cash multiple than all its peers listed here. Growth
Source: Seeking Alpha Waste Management’s current revenue growth of 4.8% lags Republic Services’ 7.9% and Waste Connections’ 10.7%. However, the company’s three-year net income CAGR of 16.7% shows strong bottom-line execution. Levered free cash flow has declined at a three-year CAGR of 14.1% due to increased growth investments, though forward revenue growth of 5.3% suggests improving momentum. Profitability
Source: Seeking Alpha The company’s gross margin of 39.1% and net income margin of 12.1% are both in line with its peers. Waste Management’s 6.8% levered free cash flow margin, while solid, reflects ongoing growth investments. Returns tell the real story, with industry-leading metrics including 35.0% return on equity, 9.7% return on assets, and 11.1% return on total capital. Our Opinion 8/10 Waste Management’s industry-leading profitability metrics and consistent execution of its strategic initiatives make it a solid investment. The company has successfully leveraged its scale to drive margin expansion while investing heavily in sustainability and automation. Management’s disciplined approach to pricing and cost control continues to deliver results, while the pending Stericycle acquisition opens new growth avenues in healthcare waste. The only factor keeping us from a higher rating is the integration risk associated with the Stericycle acquisition, and the stock appears fairly valued. |
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Proprietary Data Insights Top Waste Management Stock Searches in the Last Month
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