Waste Management (WM)

Waste management services provider Waste Management (NYSE:WM) fell short of the market’s revenue expectations in Q3 CY2025, but sales rose 14.9% year on year to $6.44 billion. Its non-GAAP profit of $1.98 per share was 1.6% below analysts’ consensus estimates.

Company Overview

Headquartered in Houston, Waste Management (NYSE:WM) is a provider of comprehensive waste management services in North America.

Waste management companies can possess licenses permitting them to handle hazardous materials. Furthermore, many services are performed through contracts and statutorily mandated, non-discretionary, or recurring, leading to more predictable revenue streams. However, regulation can be a headwind, rendering existing services obsolete or forcing companies to invest precious capital to comply with new, more environmentally-friendly rules. Lastly, waste management companies are at the whim of economic cycles. Interest rates, for example, can greatly impact industrial production or commercial projects that create waste and byproducts.

Competitors operating in the waste management sector include Republic Services (NYSE:RSG), Casella Waste Systems (NASDAQ:CWST), and Stericycle (NASDAQ:SRCL).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Luckily, Waste Management’s sales grew at an impressive 10.6% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Waste Management’s annualized revenue growth of 10.9% over the last two years aligns with its five-year trend, suggesting its demand was predictably strong.

This quarter, Waste Management’s revenue grew by 14.9% year on year to $6.44 billion but fell short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 6.8% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and indicates its products and services will see some demand headwinds.

Gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Waste Management’s unit economics are great compared to the broader industrials sector and signal that it enjoys product differentiation through quality or brand. As you can see below, it averaged an excellent 38.7% gross margin over the last five years. Said differently, roughly $38.67 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue.

In Q3, Waste Management produced a 40.5% gross profit margin, up 1.1 percentage points year on year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Waste Management’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 17.2% over the last five years. This profitability was elite for an industrials business thanks to its efficient cost structure and economies of scale. This is seen in its fast historical revenue growth and healthy gross margin, which is why we look at all three data points together.

Analyzing the trend in its profitability, Waste Management’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. We like to see margin expansion, but Waste Management’s performance still shows it’s one of the better Waste Management companies as most peers saw their margins plummet.

In Q3, Waste Management generated an operating margin profit margin of 15.3%, down 4.6 percentage points year on year. Conversely, its revenue and gross margin actually rose, so we can assume it was less efficient because its operating expenses like marketing, R&D, and administrative overhead grew faster than its revenue.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Waste Management’s remarkable 12.2% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Waste Management, its two-year annual EPS growth of 12.4% is similar to its five-year trend, implying strong and stable earnings power.

In Q3, Waste Management reported adjusted EPS of $1.98, up from $1.96 in the same quarter last year. Despite growing year on year, this print slightly missed analysts’ estimates, but we care more about long-term adjusted EPS growth than short-term movements. Over the next 12 months, Wall Street expects Waste Management’s full-year EPS of $7.27 to grow 12%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Waste Management has shown robust cash profitability, enabling it to comfortably ride out cyclical downturns while investing in plenty of new offerings and returning capital to investors. The company’s free cash flow margin averaged 12.4% over the last five years, quite impressive for an industrials business.

Taking a step back, we can see that Waste Management’s margin expanded by 3.2 percentage points during that time. This shows the company is heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability was flat.

Waste Management’s free cash flow clocked in at $2.9 billion in Q3, equivalent to a 45% margin. This result was good as its margin was 34.7 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Waste Management hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked. Its five-year average ROIC was 12.7%, higher than most industrials businesses.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Uneventfully, Waste Management’s ROIC has stayed the same over the last few years. Given the company’s underwhelming financial performance in other areas, we’d like to see its returns improve before recommending the stock.

Waste Management reported $175 million of cash and $23.36 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $7.31 billion of EBITDA over the last 12 months, we view Waste Management’s 3.2× net-debt-to-EBITDA ratio as safe. We also see its $890 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results. Its adjusted operating income missed and its revenue fell slightly short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 3.4% to $206.47 immediately following the results.

Updated: December 4, 2025 at 10:19 PM EST

Before deciding whether to buy Waste Management or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

There are some positives when it comes to Waste Management’s fundamentals. First off, its revenue growth was impressive over the last five years. And while its cash profitability fell over the last five years, its impressive operating margins show it has a highly efficient business model. On top of that, its healthy gross margins indicate the value of its differentiated offerings.

Waste Management’s P/E ratio based on the next 12 months is 26.9x. Looking at the industrials space right now, Waste Management trades at a compelling valuation. For those confident in the business and its management team, this is a good time to invest.

Wall Street analysts have a consensus one-year price target of $246.52 on the company (compared to the current share price of $214.08), implying they see 15.2% upside in buying Waste Management in the short term.