Casella Waste Systems (CWST)

Waste management company Casella (NASDAQ:CWST) reported Q1 CY2025 results topping the market’s revenue expectations, with sales up 22.3% year on year to $417.1 million. The company expects the full year’s revenue to be around $1.79 billion, close to analysts’ estimates. Its non-GAAP profit of $0.19 per share was 85% above analysts’ consensus estimates.

Company Overview

Starting with the founder picking up garbage with a pickup truck he purchased using savings from high school, Casella (NASDAQ:CWST) offers waste management services for businesses, residents, and the government.

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 offering similar products include Waste Management (NYSE:WM), Republic Services (NYSE:RSG), and Waste Connections (NYSE:WCN).

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, Casella Waste Systems’s sales grew at an incredible 16.5% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Casella Waste Systems’s annualized revenue growth of 21.1% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

This quarter, Casella Waste Systems reported robust year-on-year revenue growth of 22.3%, and its $417.1 million of revenue topped Wall Street estimates by 3.1%.

Looking ahead, sell-side analysts expect revenue to grow 11.7% over the next 12 months, a deceleration versus the last two years. Still, this projection is healthy and suggests the market sees success for its products and services.

At StockStory, we prefer high gross margin businesses because they indicate the company has pricing power or differentiated products, giving it a chance to generate higher operating profits.

Casella Waste Systems’s gross margin is good compared to other industrials businesses and signals it sells differentiated products, not commodities. As you can see below, it averaged an impressive 34% gross margin over the last five years. Said differently, Casella Waste Systems paid its suppliers $66.02 for every $100 in revenue.

In Q1, Casella Waste Systems produced a 32.8% gross profit margin, in line with the same quarter last 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 an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Casella Waste Systems was profitable over the last five years but held back by its large cost base. Its average operating margin of 6.6% was weak for an industrials business. This result is surprising given its high gross margin as a starting point.

Looking at the trend in its profitability, Casella Waste Systems’s operating margin decreased by 4 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Casella Waste Systems’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q1, Casella Waste Systems’s breakeven margin was down 1.3 percentage points year on year. Since Casella Waste Systems’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

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.

Casella Waste Systems’s EPS grew at a weak 3.9% compounded annual growth rate over the last five years, lower than its 16.5% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

We can take a deeper look into Casella Waste Systems’s earnings to better understand the drivers of its performance. As we mentioned earlier, Casella Waste Systems’s operating margin declined by 4 percentage points over the last five years. Its share count also grew by 31.3%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

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

For Casella Waste Systems, EPS didn’t budge over the last two years, a regression from its five-year trend. We hope it can revert to earnings growth in the coming years.

In Q1, Casella Waste Systems reported EPS at $0.19, up from negative $0.01 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Casella Waste Systems’s full-year EPS of $1.09 to grow 10.7%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Casella Waste Systems has shown impressive cash profitability, enabling it to ride out cyclical downturns more easily while maintaining its investments in new and existing offerings. The company’s free cash flow margin averaged 9.5% over the last five years, better than the broader industrials sector. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Taking a step back, we can see that Casella Waste Systems’s margin was unchanged during that time, showing its long-term free cash flow profile is stable.

Casella Waste Systems burned through $5.35 million of cash in Q1, equivalent to a negative 1.3% margin. The company’s cash burn was similar to its $2.41 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Casella Waste Systems historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.8%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

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. Over the last few years, Casella Waste Systems’s ROIC averaged 2 percentage point decreases each year. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Casella Waste Systems reported $267.7 million of cash and $1.22 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 $359.7 million of EBITDA over the last 12 months, we view Casella Waste Systems’s 2.6× net-debt-to-EBITDA ratio as safe. We also see its $27.32 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 were impressed by how significantly Casella Waste Systems blew past analysts’ EPS expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The stock remained flat at $116.75 immediately following the results.

Updated: May 21, 2025 at 11:20 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Casella Waste Systems.

Casella Waste Systems isn’t a terrible business, but it doesn’t pass our bar. Although its revenue growth was exceptional over the last five years, it’s expected to deteriorate over the next 12 months and its declining operating margin shows the business has become less efficient. And while the company’s strong free cash flow generation allows it to invest in growth initiatives while maintaining an ample cushion, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Casella Waste Systems’s P/E ratio based on the next 12 months is 95x. At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $122.14 on the company (compared to the current share price of $114.65).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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