Waste Management (WM) Profit Margin Miss Raises Questions for Premium Valuation Narrative

Waste Management (WM) posted net profit margins of 10.3%, down from 12.3% a year ago, showing a contraction in margins. The latest filing also highlighted that while earnings have grown an average of 12% per year over the last five years, the most recent year saw negative earnings growth, breaking that trend. Forecasts call for annual earnings growth of 13.6%, slightly behind the US market forecast, with revenue growth expected to trail the broader market as well. This makes the quality of earnings and competitive valuation key talking points for investors this quarter.

See our full analysis for Waste Management.

Now, let's see how these results stack up against the widely-followed narratives. Some expectations may be validated, while others could face new questions.

See what the community is saying about Waste Management

Margin Recovery Bets on Tech

• Analysts expect profit margins to rise from 11.4% today to 13.8% by 2027, even though net profit margin contracted this year versus last.
• According to the analysts' consensus view, margin improvement rests on rolling out more automation and technology, especially in recycling and waste handling. This is predicted to translate into higher net margins and improved earnings.
  • The consensus narrative highlights that automated recycling and sustainability investments should help WM outpace cost pressures and lift future profit margins.
  • However, with economic headwinds and regulatory changes ongoing, there is tension around how quickly technology benefits will materialize compared to the forecasted uptick in profitability.
• What could tip this trend? See both the strongest bull and bear cases in our full consensus analysis before margins move further.📊 Read the full Waste Management Consensus Narrative.

Peer Comparison: P/E Sits Between Industry and Peers

• Waste Management’s P/E ratio of 32.1x is lower than peers (46.9x) but above the US Commercial Services industry average of 26.7x, placing it in a middle ground among competitors.
• Consensus narrative points to premium P/E as a sign of high-quality earnings and steady growth, but flags that sustaining this premium depends on actually achieving analyst expectations:
  • If revenue and earnings do not hit forecasted growth, the current P/E could be seen as expensive versus industry averages.
  • On the other hand, stable dividends and below-peer pricing may make the stock attractive for income-focused investors looking for consistency with less speculative upside.

Analyst Targets Outpace Today’s Price

• The current share price ($204.23) sits about 22.8% below the analyst target ($250.14), while DCF fair value is almost identical to today's market price at $204.99.
• Consensus narrative underscores this gap as a source of potential upside, but the path to a higher share price hinges on WM consistently executing on projected revenue and margin gains:
  • Bulls argue the diversified, tech-driven model could close the price gap if margin and revenue initiatives pay off.
  • Cautious analysts warn, however, that risk factors such as leverage from acquisitions or regulatory hurdles could limit upside even if growth resumes.

Next Steps

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for Waste Management on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

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A great starting point for your Waste Management research is our analysis highlighting 4 key rewards and 1 important warning sign that could impact your investment decision.

See What Else Is Out There

Despite some resilient fundamentals, Waste Management’s latest margin decline and earnings miss raise concerns about its ability to sustain growth and justify its valuation.

If you want to sidestep such valuation uncertainty, check out these 864 undervalued stocks based on cash flows to find companies priced more attractively based on their long-term cash flows and growth outlook.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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