The Boring Business of Picking Up Trash

The Boring Business of Picking Up Trash

Waste Management collected $25.3 billion in revenue last year. That is a 14% increase over the prior year, and the company posted a record adjusted EBITDA margin above 30% for the first time in its history. The stock trades at roughly $224 a share, giving the whole enterprise a market value around $90 billion.

I find garbage collection to be one of the more instructive businesses to study. It teaches you something about competitive advantage that a technology company never will: when your moat is a landfill permit, nobody is disrupting you from a garage in Palo Alto.

What the Numbers Say

Full-year 2025 adjusted operating EBITDA came in around $7.55 billion. Free cash flow hit $2.94 billion. The company is guiding toward $3.8 billion in free cash flow for 2026, which would represent nearly 30% growth in cash generation year over year.

That free cash flow is being put to work. WM raised its dividend 14.5%, bringing the annual payout to $3.78 per share, and plans to repurchase $3 billion in stock this year. When a company can raise its dividend by double digits and still buy back shares in size, the underlying economics are telling you something useful.

On a per-share basis, analysts expect about $7.88 in earnings for 2026. At $224, that puts the forward P/E at roughly 28 times. That is not cheap by any traditional measure. But the question with a business like WM is not whether 28 times earnings seems high in the abstract. It is whether the cash flows are durable enough and growing fast enough to justify the price over a decade.

The Stericycle Chapter

WM closed its $7.2 billion acquisition of Stericycle in November 2024, bringing regulated medical waste and secure document destruction under the WM umbrella. The integration has not been painless. An ERP system rollout created invoicing problems, frustrated hospital customers, and caused some churn. Q3 2025 was particularly rough on that front.

But by Q4, customer call volumes were declining and the business was stabilizing. The new Healthcare Solutions division generated $2.5 billion in revenue for 2025, representing about 10% of WM's total portfolio. Margins in that segment improved to 17.5% by Q3 and continued to trend upward.

More encouraging: cost savings from the deal are running ahead of plan. SG&A costs dropped 700 basis points since Q3 2024. Cross-selling is gaining traction. One hospital customer increased its spend by more than $5 million. Over 7,000 small and medium customers have been cross-sold across the combined platform. WM expects to pull more than $125 million in annual run-rate cost savings from the deal.

Integration headaches are the tax you pay for acquisitions in the real world. The question is whether the underlying asset is worth the trouble. In Stericycle's case, the secular tailwinds are strong: an aging population, growing healthcare spend, tighter compliance requirements. Medical waste does not go away in a recession. If WM can get the margins up to something approaching its core business, this deal will look smart a few years from now.

The Sustainability Bet

WM completed seven renewable natural gas facilities and nine automation projects in 2025. Four more recycling facilities are expected to come online this year, and the company has earmarked $85 million for two additional RNG projects and one recycling plant due by 2028.

Management is targeting $1 billion in adjusted EBITDA from sustainability and recycling segments by 2027. That number is ambitious but not unreasonable given the trajectory. Landfill gas is not glamorous, but converting methane into revenue instead of letting it vent into the atmosphere is the kind of investment that makes both environmental and economic sense.

The Valuation Question

Here is where candor requires some caution. At $90 billion, WM trades at roughly 24 times its 2026 free cash flow target of $3.8 billion. That is a premium valuation for a waste hauler, even one with WM's competitive position.

The bull case writes itself: durable cash flows, pricing power, regulatory moats, demographic tailwinds in healthcare waste, a growing sustainability segment, and management that allocates capital sensibly. All true.

The bear case is simpler: you are paying a full price for those qualities, and the Stericycle integration still has work to do. If something goes wrong with the healthcare division, or if free cash flow disappoints, the multiple could compress.

I have watched WM for years. The business quality is not in question. The price, however, asks you to believe that everything goes roughly according to plan for the next several years. That has historically been a reasonable bet with this company, but 28 times forward earnings leaves little room for error.

Where I Come Out

WM is the kind of business I admire: it does something essential, does it better than anyone else, and generates cash while doing it. The Stericycle acquisition adds complexity but also adds a growth vector in regulated medical waste that fits the existing network.

At today's price, I would not rush to buy. But I would not sell it either. If the stock pulled back 15 to 20 percent on a market-wide selloff or an integration hiccup, that would be a more interesting entry point. For owners who already hold it, this is a business worth keeping.

The garbage business rewards patience. So does the stock, if you get the price right.