Urbanization And Recycling Trends Will Advance Sustainable Waste Solutions

Key Takeaways

• Accelerated investments and M&A activity are driving earlier-than-expected margin accretion, higher cash flow, and substantial revenue growth well above industry forecasts.
  
• Strategic focus on growth markets, regulatory tailwinds, and operational innovation are strengthening recurring revenue, pricing power, and sustainable long-term earnings expansion.
  
• Shifting industry trends, regulatory pressures, and financial risks threaten GFL's traditional business model, growth prospects, profitability, and competitive positioning.

Catalysts

Provides non-hazardous solid waste management and environmental services in Canada and the United States.

• Analyst consensus expects strong margin expansion from EPR and RNG investments, but current trends indicate a much more rapid ramp and earlier-than-expected margin accretion, positioning GFL to achieve and potentially exceed mid-30 percent adjusted EBITDA margins years ahead of plan, driving higher free cash flow conversion and net margins.
  
• While analysts broadly acknowledge the positive impact of M&A, the current outsized M&A pipeline, accelerated closing schedule, and management's enhanced balance sheet flexibility are setting up GFL for a step change in both revenue and EBITDA growth in 2026 and beyond, with operating leverage substantially lifting earnings above consensus.
  
• GFL's focused exposure to growth markets with accelerating urbanization and rising population density is leading to structurally higher volumes and recurring revenue, especially as migration and development concentrate in the U.S. Southeast and regulated Canadian regions, directly supporting above-industry organic revenue growth.
  
• Increasingly robust regulatory pressure on waste disposal and the roll-out of extended producer responsibility frameworks are catalyzing stepwise gains in both market share and pricing power for GFL, as municipalities and producers outsource to scaled, technology-enabled operators, materially boosting top-line growth and sustainable net margin expansion.
  
• The strategic pivot toward advanced recycling, automated collection, and CNG fleet conversion-enabled by GFL's latest investments-unlocks a multiyear platform for operational efficiency, renewable energy monetization, and sustainable cost leadership, which together are poised to drive structural improvement in operating margins and long-term earnings growth, beyond current consensus estimates.

GFL Environmental Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on GFL Environmental compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming GFL Environmental's revenue will grow by 3.1% annually over the next 3 years.
• Even the bullish analysts are not forecasting that GFL Environmental will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate GFL Environmental's profit margin will increase from 0.0% to the average CA Commercial Services industry of 4.6% in 3 years.
• If GFL Environmental's profit margin were to converge on the industry average, you could expect earnings to reach CA$403.3 million (and earnings per share of CA$1.24) by about August 2028, up from CA$4.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 86.8x on those 2028 earnings, down from 6297.7x today. This future PE is greater than the current PE for the CA Commercial Services industry at 24.8x.
• Analysts expect the number of shares outstanding to decline by 3.5% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.47%, as per the Simply Wall St company report.

GFL Environmental Future Earnings Per Share Growth

Risks

• The global acceleration toward waste reduction and circular economy initiatives could decrease landfill volumes and reduce demand for traditional waste management services, leading to structurally lower growth opportunities and long-term downward pressure on GFL Environmental's future revenues.
  
• Widespread adoption of advanced recycling technologies and zero-waste consumer trends may further reduce municipal and industrial waste streams, pressuring GFL's waste volumes processed and, in turn, risking sustained weakness in revenues and organic growth.
  
• Increased regulatory and societal pressure to decarbonize operations will likely necessitate higher compliance costs and significant capital expenditures for GFL, whose business remains reliant on traditional waste management and fuel consumption, potentially compressing net margins over time.
  
• GFL's continued high leverage and aggressive M&A strategy heighten financial risk, with rising interest expenses and debt-servicing needs putting ongoing pressure on net income, particularly if macroeconomic conditions tighten or borrowing costs rise.
  
• Long-term, intensifying industry competition-including disruptive and low-cost entrants, stricter landfill and hazardous waste regulations, and the growing trend of municipalities moving to in-house or public-private partnership waste solutions-could erode GFL's pricing power, increase operating costs, and threaten the company's gross margins and future recurring revenues.

Valuation

• The assumed bullish price target for GFL Environmental is CA$89.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of GFL Environmental's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$89.0, and the most bearish reporting a price target of just CA$58.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be CA$8.8 billion, earnings will come to CA$403.3 million, and it would be trading on a PE ratio of 86.8x, assuming you use a discount rate of 6.5%.
• Given the current share price of CA$69.33, the bullish analyst price target of CA$89.0 is 22.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.