Waste Management (WM)

Total return at 5 years: 5.1%/year = 2.9% appreciation + 2.1% dividend. The target price ($244) is ex-dividend; the $24 in dividends collected over 5 years are added separately.

The methods disagree: one places the value today above the price ($211) and the other below.

Today — fairly valued: at $211 trades ~2.6% below its value discounted to today (~$217); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($244) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$137.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($211) 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 implied growth (5.9%/year) is in line with our base case (4.5%/year) → the price is consistent with the projection.

That growth implies ~$5 bn of owner earnings in year 5 (vs ~$4.6 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 Suma de las partes (EV/EBIT por segmento). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

WM combines four businesses of different natures and is valued by segment, not with a single multiple on the consolidated figure. Collection and Disposal (collection, landfills, transfer) is the capital-intensive core and contributes close to 93% of projected terminal EBIT, after proportionally allocating unassigned corporate cost; it trades at an essential infrastructure multiple (the waste archetype band, 15-20x EV/EBIT) for landfill scarcity, vertical integration and low customer concentration. Recycling Processing and Sales sits at the floor of the commodity band (10x): its revenue depends on the market price of recyclables (which fell ~20% in 2025) and the segment ran an operating loss in 2025 on a US$160 million impairment charge; the transition from the rebate scheme to fee-for-service reduces that exposure going forward but is not yet reflected in the margin. Renewable Energy, though small, grows with the development of new landfill gas plants and captures renewable fuel regulatory credits and renewable energy certificates; it is valued with a regulated energy multiple (16x, the utility band) for its contractual character. Healthcare Solutions (formerly Stericycle, acquired in November 2024) is still integrating processes and operates at a negative margin; it is valued with a conservative industrial multiple (13x) reflecting integration risk and inherited litigation. Year 1 of the revenue path anchors to the guidance in the second-quarter 2026 release (8-K of 28-Jul-2026): total revenue of US$26.275-26.475 billion for calendar year 2026, equivalent to growth of approximately 4.6% from the US$25.204 billion of 2025, with a guided adjusted EBITDA margin of 31.0-31.2%. The company resumed share repurchases in 2026 (US$1,003 million in the first half, after having paused them almost entirely in 2025 while deleveraging the balance sheet post-Stericycle) — it is modeled with an explicit declining share path (sharesPath) rather than accumulating cash, because the net reduction in shares outstanding is material (close to 1%/year) and the retained excess free cash flow is redeployed into growth capex and bolt-on acquisitions already incorporated into the revenue projection (reinvestsExcess). The cash bridge uses the real net debt from the balance sheet (total debt of US$23.4 billion less cash of US$0.6 billion), because this is an enterprise-level (EV) model, not an equity-level one.

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 $244 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $211, 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 $244 in 5 years plus $24 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 $217. Against the current market price ($211), the margin of safety is 2.6% (trades below the maximum → there is margin) and the total return at that price would be 5.1% annually.

• Valuation method. Sum of the parts with its own EV/EBIT multiple per segment, not a single multiple over the consolidated figure.
• Estimated total return. The 5-year annualized total return in the base scenario is +5%, including dividend.
• Margin of safety. It trades close to intrinsic value, far from the required margin of safety.
• Core multiple. Collection and Disposal is valued at 18x EV/EBIT, in the mid-to-upper part of the waste archetype band.

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

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (104%, cash vs. accruals)
• ✕ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on capital. ROIC of 10.9% on the balance sheet's real invested capital, just above the 10% bar.
• Cash generation. FCF (OCF minus capex) nearly doubled from FY22 to TTM, from US$1.9 to US$3.6 billion.
• Stock-based compensation. Stock-based compensation expense is low (0.7% of revenue), without the dilution trap of a high-SBC business.
• Goodwill load. US$14.0 billion of goodwill on the balance sheet, largely from the Stericycle acquisition, weighs down ROIC measured on total capital.

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

Revenue growth combines collection-and-disposal yield (price) with physical waste volume, plus the contribution from bolt-on acquisitions and the development of new landfill gas projects for renewable energy. Waste internalization (use of company-owned landfills) is the lever that translates that volume into margin: the higher the internalized percentage, the higher the consolidated margin per ton processed.

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).

• Guidance anchor. Year 1 of the path uses the company's own 2026 revenue guidance, not an extrapolation of the historical trajectory.
• Core growth. Collection and Disposal grows at a moderate and stable pace, dominated by price rather than volume.
• Renewable Energy growth. The smallest segment grows the fastest, with adjusted EBITDA up 32.5% year over year in the second quarter of 2026.
• Collection volume. Collection and Disposal volume fell 1.8% in the second quarter of 2026, partly due to the intentional reduction of lower-margin residential business.

• Service recurrence. Waste collection is a non-discretionary service with multi-year contracts.
• Customer concentration. The largest customer represented less than 5% of 2025 revenue.
• Commodity exposure. Recycling Processing and Sales depends directly on the market price of recyclables.
• Line diversification. Four segments of different nature and quality, with two still lacking steady-state profitability.
• Core pricing power. Collection and Disposal's yield (price) held between 3.6% and 5.7% over the most recent periods.

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 3.1x
• !Interest coverage (EBIT / interest)5.1x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 104% of ROIC
• !Value creation (ROIC − 10% bar)+1pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.0x
• !Float / working capitalConsumes cash $0.2 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.7% 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. Net debt of US$22,799 million, elevated following the financing of the Stericycle acquisition.
• Short-term liquidity. Cash of only US$0.6 billion versus US$1.1 billion of current debt; depends on continued access to credit markets.
• Investment grade. Maintaining the investment-grade rating depends on achieving the projected leverage reduction following the acquisition.
• Operating cash generation. TTM operating cash flow (US$6.5 billion) comfortably covers combined capex and dividend.

• Leadership continuity. Jim Fish has led the company since 2016, with a long and consistent tenure.
• Capital discipline. Buybacks were paused during post-Stericycle deleveraging and only resumed once the balance sheet allowed it.
• Ownership transparency. The detail of executive ownership is pending from the DEF 14A proxy due to a format limitation in this run.
• Large M&A execution. Stericycle integration has still not turned to a positive operating margin almost two years after closing.

• Partial missing buyers: the Stericycle acquisition diluted the consolidated operating margin since its close (November 2024), and the market has not yet given full credit to the pending integration synergy.
• Motivated sellers in the short-term read: the US$160 million impairment charge at Recycling Processing and Sales and the reported operating loss at Healthcare Solutions are both non-recurring or integration-related, and do not reflect the steady-state economics of the core business.
• The core business (Collection and Disposal) continues to show consistent operating improvements —rising internalization, sustained price yield— that are partly obscured within the consolidated result by the drag from the pieces still under integration.

The gap between perception and reality is moderate: there is no collapse of the core business, but rather an integration phase for a large acquisition that has not yet fully shown up in the consolidated margin.

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 -8%/year (-33% total): the margin of safety protects the downside. The bull (+10%/year, +63% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Stericycle integration. Concrete execution risk: ERP systems, collections, legacy litigation, still unresolved almost two years after closing.
• Waste diversion. The structural diversion toward recycling and composting erodes the highest-margin link of the core business.
• Commodity and credit volatility. Recycling and Renewable Energy depend on market prices and regulatory policies outside the company's control.
• Environmental regulatory changes. The designation of certain per- and polyfluoroalkyl substances (the so-called «forever chemicals») as hazardous substances under CERCLA exposes the company to higher remediation and litigation costs.
• Long-term permit scarcity. The same regulatory barrier that protects the company today also limits its own future expansion capacity.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROIC 11% above the 10% bar, but the margin is limited (+3%) → excellent business at a fair price.

• Peter Lynch Growth at a reasonable price (GARP)

  A cyclical growing 5% at a multiple/growth of 5.3 → expensive for its growth.

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

  Earnings yield 4% (EBIT/EV) + ROIC 11% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 6%, in line with our 5%: perception and reality aligned.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -11%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

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

• Aswath Damodaran Expectations implied by the price

  The price implies 6% vs our 5%: coherent, but at the optimistic end of the range.