Waste Connections (WCN)

Total return at 5 years: 0.1%/year = -1.2% appreciation + 1.3% dividend. The target price ($145) is ex-dividend; the $9 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $95 · Multiples $125) is below the market price ($154).

Today — expensive, no margin of safety: at $154 trades ~23.4% above its value discounted to today (~$125); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Preserva valor: the target price ($145) plus dividends yield just enough to preserve nominal capital, below the required 4% floor.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$78.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($154) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The price discounts growth (14.3%/year) above our base case (5.5%/year) → it is priced for a demanding scenario and leaves little cushion against a slowdown.

That growth implies ~$2.3 bn of owner earnings in year 5 (vs ~$1.5 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on EBIT normalizado (EV/EBIT). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Year 0 is the TTM to 30-Jun-2026 (XBRL + the 8-K of 22-Jul-2026, the quarter already ingested into XBRL). Reported TTM EBIT (US$1.662bn, a 17.0% margin) is depressed by charges recurrent in the waste industry: adjustments to the landfill closure and post-closure liability (US$138.0M in the first half of 2026, plus the US$67.4M of environmental liability + US$30.0M of contract write-offs + US$12.7M of asset write-offs in 2025) and acquisition transaction expenses. These charges are periodic in the waste business (actuarial revaluations of the closure obligation) but not a stable annual pattern, so they are normalized using the adjusted EBITDA the company itself reconciles (which excludes them by definition) less D&A and closure interest accretion: TTM adjusted EBITDA margin ~32.8% − TTM D&A/revenue (13.1%) − interest accretion (~0.4%) = a normalized EBIT margin of ~19.3%, which is consistent with the 2026 adjusted EBITDA guidance (US$3.33-3.34bn on US$10.02-10.05bn of revenue, a ~33.2% margin) less guided D&A and amortization (~13.0%) = ~19.9% for the full calendar year 2026. The revenue path starts at +5.8% (year+1), anchored to the guidance in the 8-K of 22-Jul-2026 (revenue US$10.02-10.05bn for fiscal year 2026, +6.0% over the US$9,466.9M of 2025; given that the +1y window runs from Jun-2026 to Jun-2027 and the first half of 2026 is already growing 6.4%, the second half implied by guidance decelerates to ~5.6%, hence the ~5.8% anchor for the full window) and decelerates smoothly to 4.8% in year+5, reflecting that organic growth (price 4.6-6.5% offset by the intentional shedding of lower-quality volume, ~-1.7 to -2.8%) holds up, while the contribution of tuck-in acquisitions moderates slightly on the sector's increasing consolidation. The tax rate (24.1%) is the TTM effective rate from XBRL. capexMaint is set equal to D&A (a valid shortcut: total TTM capex —US$1,280M— is in line 1:1 with TTM D&A —US$1,275M—, with no relevant excess of organic growth capex; real growth comes from acquisitions, which are accounted for separately in investing activities, not in PP&E capex). maintPct=0.85 reflects that almost all projected capex is fleet/landfill maintenance, with a moderate allowance for organic growth. The company is a serial acquirer (19 acquisitions for US$966.8M in 2025; 24 for US$2,228M in 2024; 13 for US$766.2M in 2023): invested capital carries the goodwill and intangibles accumulated over decades of tuck-in acquisitions (goodwill US$8.39bn + intangibles US$1.97bn ≈ 60% of invested capital of ~US$17.1bn), which structurally depresses nominal ROIC (~8.0%) below the 10% bar even though the underlying economics of each acquired business are solid — the same pattern as BSX/DHR. `accumulateCash:false` and `reinvestsExcess:true`: the company's cash balance is structurally low (US$46-98M at the last two closes, on a US$21.4bn balance sheet) because excess cash flow is continuously redeployed into tuck-in acquisitions and share repurchases, it does not accumulate. `sharesPath` models a sustained net buyback of ~1%/year: although the first half of 2026 showed a record pace (US$614.5M, ~1.5% of shares outstanding, partly funded with debt issuance —long-term debt proceeds of US$1,703.6M in the half—), the historical net buyback in 2022-2025 was almost nil (258.04M to 257.98M diluted shares, offset by stock-based compensation dilution), so the midpoint between the nearly flat historical pace and the accelerated recent pace is projected, avoiding extrapolating the peak. The current dividend (US$1.40/share, the run rate of the last declared quarterly US$0.35 × 4, after the 11.1% increase of October 2025) grows ~10%/year, in line with the history of increases (US$0.945 → US$1.295 between 2022 and 2025). netCash uses the net debt from the 8-K balance sheet (long-term debt US$9,283.8M + current portion US$8.1M − cash US$98.2M = US$9,194M), not the stale XBRL current debt tag (frozen at Mar-2023). The base exit multiple (17× EV/EBIT) sits in the middle of the waste archetype band (15-20×): the moat of landfill permit scarcity and exclusive contracts supports the high end, but the below-bar ROIC and the leverage (debt to book capitalization ~54%) moderate it away from the ceiling.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $145 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $154, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $145 in 5 years plus $9 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $125. Against the current market price ($154), the margin of safety is -23.4% (trades above the maximum → a premium is paid) and the total return at that price would be 0.1% annually.

• Entry multiple vs. band. EV/EBIT 26× TTM, well above the waste archetype's 15-20× band.
• Terminal exit multiple. 17× EV/EBIT, at the midpoint of the band, reflects a solid moat with ROIC below the bar.
• Margin of safety today. No margin of safety: at this price capital is preserved, but it is not bought below its value.
• 5-year compound return. +0% in the base case, at market price.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (95%, cash vs. accruals)
• ✕ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Cash generation. TTM operating cash flow of US$2,513M, with consistent cash conversion year over year.
• ROIC vs. the 10% bar. 8.4%, below the bar — attributable to goodwill accumulated from acquisitions, not to the underlying economics of the business.
• Reinvestment runway. The sector remains fragmented, with thousands of small local operators sustaining the tuck-in acquisition pipeline.
• Earnings quality. Reported EBIT is depressed by periodic landfill closure charges that require explicit normalization.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Waste Connections alternates the use of excess cash flow between tuck-in acquisitions and share buybacks depending on the available M&A pipeline: 2024 was a year of intense acquisitions (US$2,228M, no buybacks), while 2025 and the first half of 2026 shifted toward record buybacks (US$505.5M and US$614.5M respectively) with a more moderate acquisition pace. The dividend, by contrast, grows steadily and predictably (~9-11%/year) regardless of the M&A cycle.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Organic growth. Price (4.6-6.5%) partly offsets the intentional shedding of lower-quality volume (-1.7% to -2.8%).
• Inorganic growth. Steady tuck-in acquisitions (19 in 2025, 24 in 2024, 13 in 2023) add several percentage points of growth.
• Sustainability of the pace. Growing sector consolidation may raise the cost of future acquisition candidates.
• Observed deceleration. Total growth decelerated from +11.2% (FY23-24) to +6.1% (FY25) and +5.7% (TTM).

• Demand recurrence. Waste is generated continuously and independently of the economic cycle; highly predictable demand.
• Service differentiation. The service itself is relatively commodity-like, but contractual exclusivity and landfill positioning protect it.
• Pricing power. Sustained core pricing of 5.6-6.5% in recent periods, above general inflation.
• Behavior in recessions. Commercial/industrial waste volume can fall in a recession, but the residential base is very stable.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• !Leverage (net debt / EBITDA)Net debt / EBITDA 2.9x
• !Interest coverage (EBIT / interest)5.3x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 95% of ROIC
• ✕Value creation (ROIC − 10% bar)-2pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.0x
• !Float / working capitalConsumes cash $0.3 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.8% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Debt to book capitalization ~54%; net debt ~US$9.2bn.
• Liquidity. Low cash balance (US$98.2M) by design — the excess is redeployed into acquisitions and buybacks, not accumulated.
• Free cash flow generation. Adjusted free cash flow guided at US$1.40-1.45bn for 2026, covering the dividend and a large part of the buyback.
• Investment grade. The release highlights 'the durable strength of the balance sheet' as support for the growth and capital return strategy.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• CEO tenure. Founder and CEO since 1997 (with a pause as Executive Chairman 2019-2023); more than 35 years in the industry.
• Capital allocation. Disciplined alternation between tuck-in acquisitions and buybacks depending on the available pipeline, with no years of idle capital.
• Interest alignment. The proxy does not break out the ownership percentage of directors and executives as a group in the available excerpt.
• Communication candor. The earnings release explicitly discloses landfill closure charges and breaks them out in the non-GAAP reconciliations.

• There is no evidence of missing buyers or motivated sellers: the stock trades at an entry multiple (EV/EBIT 26×) well above the historical band of the waste archetype (15-20×), the opposite of a value opportunity.
• There is no collapse in the stock suggesting panic or an unjustified decline.
• The company has recently beaten expectations and raised its 2026 guidance, which suggests the market is rewarding recent execution, not excessively discounting a real risk.

No clear source of market discount is identified: the price appears to reflect, instead, a sustained premium for business quality and acquisition execution — the opposite case of a value opportunity, per §3 Step 9.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -9%/year (-37% total): the margin of safety protects the downside. The bull (+7%/year, +41% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Municipal competition. Governmental operators with access to tax-exempt financing can compete on price.
• Permitting risk. Renewing or expanding landfill permits is increasingly difficult, costly, and slow.
• Landfill closure risk. Actual closure and post-closure costs may exceed provisions, as at Chiquita Canyon.
• Interest rate risk. Exposure to variable rates (SOFR and its Canadian equivalent) on net debt of ~US$9.2bn.
• Integration risk. The pace of tuck-in acquisitions exposes the company to undiscovered liabilities and failed integration.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROIC 8% does not clear the 10% bar.

• Peter Lynch Growth at a reasonable price (GARP)

  A cyclical growing 6% at a multiple/growth of 4.7 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 4% (EBIT/EV) + ROIC 8% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 14% vs our 6%: priced for perfection, no favorable mispricing.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -10%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: intangibles, efficient scale, cost advantage, switching costs → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  The price demands 14% growth, far above our 6% — heroic assumptions.