WM Waste Management
Great landfill moat, but the price already assumes a long run of compounding, so there is little margin of safety.
⚠ defaulted drivers: horizon
The story
WM runs North America's largest integrated waste network, and its moat is a set of permitted landfills that would be nearly impossible to replicate. That gives it pricing power above inflation and very stable volumes. The Stericycle medical-waste deal and the renewable-natural-gas and recycling investments add some growth, but WM is a mature, capital-heavy compounder rather than a growth company.
No material change to the facts, so I kept the prior drivers. The 14% revenue jump came from the Stericycle acquisition and is not organic, so growth stays at 5% (price plus modest volume). The margin still moves from 17.7% toward 20% as Stericycle integration synergies and the RNG plants mature. Sales-to-capital was trimmed slightly, from 0.85 to 0.80, to match the observed 0.78, because capex is running well above D&A.
Value drivers
| Revenue growth (Y1) | 5.0% |
| Terminal growth | 2.5% |
| Forecast horizon | 10y |
| Target operating margin | 20.0% |
| Years to target margin | 7 |
| Sales-to-capital | 0.80 |
| Beta | 0.80 |
| Failure probability | 0.3% |
| Cost of capital (WACC) | 8.5% |
| Terminal WACC | 9.2% |
Valuation bridge
| PV of explicit FCFF | 21.83B |
| PV of terminal value | 30.50B |
| Equity value | 29.53B |
| ÷ shares → per share | $73.88 |
News
neutral -0.10 · 8 articles
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- Waste Management (WM) Could Be 20% Below Fair Value Following Its Recent Pullback
- Rollins Says AI Search Shift Is Driving Volatile Residential Lead Trends
- Waste Management Returned 290% in a Decade. These 4 Stocks Share Its Boring Advantage
- Waste Management Stocks Q2 Teardown: Waste Management (NYSE:WM) Vs The Rest
- Waste Management (WM) Stock Falls Amid Market Uptick: What Investors Need to Know
- 2 S&P 500 Stocks Worth Your Attention and 1 We Question
- 5 Stocks, 5 Different Industries, 1 Thing in Common: Reliable Income
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 26.95B | 5.0% | 18.0% | 3.83B | 1.60B | 2.23B | 2.05B |
| 2 | 28.22B | 4.7% | 18.3% | 4.09B | 1.59B | 2.50B | 2.12B |
| 3 | 29.48B | 4.4% | 18.7% | 4.35B | 1.57B | 2.78B | 2.18B |
| 4 | 30.71B | 4.2% | 19.0% | 4.61B | 1.54B | 3.08B | 2.22B |
| 5 | 31.90B | 3.9% | 19.3% | 4.88B | 1.49B | 3.38B | 2.25B |
| 6 | 33.05B | 3.6% | 19.7% | 5.14B | 1.44B | 3.70B | 2.27B |
| 7 | 34.15B | 3.3% | 20.0% | 5.40B | 1.38B | 4.02B | 2.27B |
| 8 | 35.20B | 3.1% | 20.0% | 5.57B | 1.30B | 4.26B | 2.22B |
| 9 | 36.17B | 2.8% | 20.0% | 5.72B | 1.22B | 4.50B | 2.16B |
| 10 | 37.08B | 2.5% | 20.0% | 5.86B | 1.13B | 4.73B | 2.09B |
Key risks
- Valuation risk: the market price implies margins and growth well above what landfill economics support
- Heavy capex and 22.9B of net debt limit free cash flow and make the stock sensitive to interest rates
- Stericycle integration slips, or recycled-commodity and RNG prices fall
Catalysts
- Stericycle synergies delivered and margin moves back toward 19-20%
- Price increases staying above cost inflation while RNG and recycling capex rolls off