Waste Connections (WCN)

Waste management company Waste Connections (NYSE:WCN) met Wall Street’s revenue expectations in Q4 CY2025, with sales up 5% year on year to $2.37 billion. The company’s outlook for the full year was close to analysts’ estimates with revenue guided to $9.93 billion at the midpoint. Its non-GAAP profit of $1.29 per share was 1.5% above analysts’ consensus estimates.

Company Overview

Operating a network of municipal solid waste landfills in the U.S. and Canada, Waste Connections (NYSE:WCN) is North America's third-largest waste management company providing collection, disposal, and recycling services.

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.

Waste Connections competes primarily with other large publicly-traded waste management companies including Waste Management, Inc. (NYSE: WM), Republic Services, Inc. (NYSE: RSG), and GFL Environmental, Inc. (NYSE: GFL). In its E&P waste business, competitors include Clean Harbors, Inc. (NYSE: CLH) and various regional private companies.

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, Waste Connections’s 11.7% annualized revenue growth over the last five years was impressive. 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 Connections’s annualized revenue growth of 8.6% over the last two years is below its five-year trend, but we still think the results were respectable.

This quarter, Waste Connections grew its revenue by 5% year on year, and its $2.37 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 5.2% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and suggests its products and services will see some demand headwinds.

Waste Connections’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 41.2% gross margin over the last five years. That means Waste Connections only paid its suppliers $58.79 for every $100 in revenue.

Waste Connections’s gross profit margin came in at 42.5% this quarter , marking a 1.1 percentage point increase from 41.4% in 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.

Waste Connections has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 15.8%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Waste Connections’s operating margin rose by 1.2 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Waste Connections generated an operating margin profit margin of 17.7%, up 26.5 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Waste Connections’s EPS grew at a remarkable 14.2% compounded annual growth rate over the last five years, higher than its 11.7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Waste Connections’s earnings can give us a better understanding of its performance. As we mentioned earlier, Waste Connections’s operating margin expanded by 1.2 percentage points over the last five years. On top of that, its share count shrank by 2.7%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

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

For Waste Connections, its two-year annual EPS growth of 10.9% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q4, Waste Connections reported adjusted EPS of $1.29, up from $1.16 in the same quarter last year. This print beat analysts’ estimates by 1.5%. Over the next 12 months, Wall Street expects Waste Connections’s full-year EPS of $5.15 to grow 8.8%.

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.

Waste Connections has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 14.2% over the last five years.

Taking a step back, we can see that Waste Connections’s margin dropped by 2.5 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Waste Connections’s free cash flow clocked in at $172.6 million in Q4, equivalent to a 7.3% margin. This cash profitability was in line with the comparable period last year but below its five-year average. We wouldn’t put too much weight on it because investment needs can be seasonal, causing short-term swings. Long-term trends trump temporary fluctuations.

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).

Waste Connections historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.9%, 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. Unfortunately, Waste Connections’s ROIC has stayed the same over the last few years. If the company wants to become an investable business, it must improve its returns by generating more profitable growth.

Waste Connections reported $229.6 million of cash and $9.13 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 $3.04 billion of EBITDA over the last 12 months, we view Waste Connections’s 2.9× net-debt-to-EBITDA ratio as safe. We also see its $155.4 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 EBITDA missed and its full-year revenue guidance was in line with Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 1.8% to $168.59 immediately following the results.

Updated: February 11, 2026 at 11:35 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Waste Connections, you should also grasp the company’s longer-term business quality and valuation.

When it comes to Waste Connections’s business quality, there are some positives, but it ultimately falls short. First off, its revenue growth was impressive over the last five years. And while its relatively low ROIC suggests management has struggled to find compelling investment opportunities, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits. On top of that, its impressive operating margins show it has a highly efficient business model.

Waste Connections’s P/E ratio based on the next 12 months is 30.4x. This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $204.25 on the company (compared to the current share price of $169.91).