Our Plan for Waste Management After Earnings

During Monday’s Pro Portfolio Office Hours, when quarterly results from Waste Management (WM) hit the tape, and again in our opening comments Tuesday, we cautioned that we would want to consume the company’s 10 AM ET earnings call before making any rash decisions. As you likely saw, WM shares were under pressure Tuesday morning following the company delivering top and bottom-line misses for its September quarter. It also tightened its 2025 revenue guidance to $25.275 billion, the lower end of its prior guidance range of $25.275 billion-$25.475 billion.

After closing Monday night at $213.77, WM shares bottomed Tuesday at $197.25 shortly after the market opened and rebounded toward the day’s high near $208.80 as WM's earnings call was held. Ultimately, WM shares closed Tuesday at $204.23, down ~4.5%, amid trading volume that was more than double the average. This tells us that while some short-term-minded folks likely exited their WM positions, longer-term and more value-minded investors likely stepped in to pick up shares.

What they saw, and what we see and learned on the earnings call points to a strong core waste collection business that is benefiting from automation, cost reductions, and favorable pricing. That led the segment EBITDA margins to expand 100 basis points year over year, and operating expenses below 60% of revenue for the second consecutive quarter. Because the legacy waste business accounts for 90% of the revenue mix, it led total company EBITDA margins to 30.6%, a new record. Safe to say, the waste business is performing well despite the recycling headwinds that are expected to remain in place during the current quarter and abate in 2026.

That brings us to the Healthcare Solutions business, which accounts for the other 10% of WM’s revenue and 5.5% of its overall EBITDA. While a smaller contributor overall, ongoing integration and transition issues, including customer credits, have led to slower-than-expected progress. That is expected to continue in the next quarter or two, but as that fades, we should start to see the positive impact on pricing take hold. As the management team explained, when you’re dealing with transitions and customer credits, it’s probably not the best time to try and push through a price increase.

We would characterize the issues at Healthcare Solutions as frustrating but not out of the ordinary, as WM plants its flag in the growing medical waste business. As we discussed in our comments about Labcorp’s (LH) September-quarter results, volumes are growing, and the aging population is a demographic tailwind for testing, which also makes it one for medical waste. Given WM’s ability to integrate waste acquisitions and deliver continued margin improvement, we’re inclined to be patient as they do the same here, and drive the company’s overall margins, cash flow, and EPS higher.

Helping us maintain that patience, management gave some nice color when it comes to the 2026 free cash flow bogie near $3.8 billion next year. After having pursued an accelerated investment in trucks, including automated ones, over the last three years, that investment in 2026 should return to more normalized levels.

On the acquisition front, as of now, management sees a slower pace of acquisitions between $100 million-$200 million compared to $450 million-$500 million this year. Reading between the lines, we suspect that means we are likely to see another dividend increase and potentially something on the share-repurchase front.

Similar to our comments about Labcorp’s earnings and the prospect for some price target revisions, even though we will stick with our $255 target for WM shares, we’re likely to see some of the higher price targets, in the $275+ strata, come down closer to our target. That could bring added pressure on the shares when it happens, and with that in mind, we would hold off adding WM shares in the very near-term, even though we are reiterating our One rating.

Waiting for the dust to settle could very well bring an incrementally better risk-return trade-off in the shares. That said, with the RSI on WM shares reaching an oversold condition with their $27.35 figure, we may not be inclined to wait weeks but rather a few days.

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At the time of publication, TheStreet Pro Portfolio was long WM and LH.