Last Update 13 Dec 25
Fair value Increased 0.16%WM: Future Margin Gains From Pricing And Technology Will Drive Upside
Analysts slightly raised their price target on Waste Management by 0.40 dollars to 246.52 dollars, citing incremental improvements in long term profit margin expectations that more than offset modestly lower revenue growth assumptions and a marginally higher discount rate.
What's in the News
- Management reiterated its focus on pricing strategies and technology investments to enhance customer lifetime value and optimize the cost structure, while actively pursuing tuck in acquisitions to expand its network and increase internalization (company comments).
- The company confirmed 2025 revenue guidance at approximately 25.275 billion dollars, at the low end of its prior range, reflecting weaker recycled commodity pricing and softer expectations from WM Healthcare Solutions (company guidance).
Valuation Changes
- Fair Value Estimate has risen slightly from 246.12 dollars to 246.52 dollars, reflecting a modest upward revision to intrinsic value.
- Discount Rate has increased marginally from 7.38 percent to approximately 7.38 percent, indicating a slightly higher required return in the valuation model.
- Revenue Growth has fallen modestly from about 6.04 percent to approximately 5.79 percent, incorporating more conservative top line assumptions.
- Net Profit Margin has improved slightly from roughly 13.42 percent to about 13.51 percent, driven by higher long term margin expectations.
- Future P/E has edged up from around 31.12 times to roughly 31.19 times, consistent with the small increase in fair value despite softer growth assumptions.
Key Takeaways
- Adoption of technology and automation is set to differentiate Waste Management through improved margins and stronger future earnings.
- Strategic investments in sustainability and healthcare solutions integration are poised to drive strong revenue growth and earnings.
- Economic pressures, strategic exits, and regulatory changes could lead to revenue volatility and cost pressures, impacting profitability and financial performance.
Catalysts
About Waste Management- Through its subsidiaries, provides environmental solutions to residential, commercial, industrial, and municipal customers in the United States, Canada, Western Europe, and internationally.
- The implementation of technology to supplement the workforce and optimize cost structures is expected to be a significant differentiator for Waste Management, potentially leading to improved net margins.
- The company's strategic investments in sustainability, particularly in the areas of recycling and renewable energy, are showing strong, high-return growth, which could drive future revenue increases.
- The integration and optimization of WM Healthcare Solutions are on track to deliver significant synergies, anticipated to reach $250 million annually by 2027, positively impacting earnings.
- The continued focus on scaling the core business through acquisitions, with a robust pipeline and expected higher levels of solid waste M&A, could drive revenue growth.
- The adoption of automation and technology, such as automated recycling facilities, is leading to improved EBITDA margins, which might provide stronger future earnings.
Waste Management Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Waste Management's revenue will grow by 7.0% annually over the next 3 years.
- Analysts assume that profit margins will increase from 11.4% today to 13.8% in 3 years time.
- Analysts expect earnings to reach $4.0 billion (and earnings per share of $10.16) by about September 2028, up from $2.7 billion today. The analysts are largely in agreement about this estimate.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 32.0x on those 2028 earnings, down from 32.4x today. This future PE is greater than the current PE for the US Commercial Services industry at 25.7x.
- Analysts expect the number of shares outstanding to grow by 0.36% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 7.3%, as per the Simply Wall St company report.
Waste Management Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- The potential expiration of alternative fuel tax credits, which provided a 30 basis point headwind, could affect future profitability and net margins of the company.
- Economic pressures on the temporary industrial segment and the strategic exit from low-margin residential business could expose WM to revenue volatility and lower internal revenue growth.
- Weather-related impacts, such as winter storms, have affected revenue and operating costs, posing a risk to consistent financial performance and margins.
- The acquisition of Stericycle has increased leverage, with a current ratio of 3.58x, which could limit financial flexibility and impact earnings if integration does not go as planned.
- Dependence on tariffs and regulatory changes related to renewable energies and recycling could create cost pressures and unexpected capex, impacting net margins and cash flows.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $257.3 for Waste Management based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $277.0, and the most bearish reporting a price target of just $198.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $29.4 billion, earnings will come to $4.0 billion, and it would be trading on a PE ratio of 32.0x, assuming you use a discount rate of 7.3%.
- Given the current share price of $219.16, the analyst price target of $257.3 is 14.8% 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.
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Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.