Reiterated Waste Management Price Target After $500 Million Announcement
We're sticking with this price target after Waste Management announced its expectations for acquisitions this year.
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We are reiterating our $245 price target for Waste Management WM following the company’s March quarter earnings report.
While the company reiterated its 2025 outlook, we expect a more granular update on its 2H 2025 prospects, including steps to boost margins at the recently formed WM Healthcare Solutions business.
As we discussed in our preview note on Monday, we continue to see both WM and Labcorp LH as relative safe-haven companies given the nature of their respective businesses. With Waste, we continue to favor the sticky core business that has pricing power and incremental margin opportunities, plus ample room to drive margins at the healthcare solutions business higher.
On Monday night, Waste Management delivered March quarter EPS of $1.67, nicely ahead of the $1.59 consensus, on revenue that rose almost 17% year over year to $6.02 billion, a wee bit shy of the $6.1 billion market forecast. In our preview note, we noted we would want to differentiate between the core Waste business and the acquired Stericycle business. In doing so, we find revenue for the core Waste business climbed 4.7% year over year to $5.4 billion and posted adjusted margins of 30% for the quarter, up from 29.6% in the year-ago quarter. Winter weather did impact waste volumes during the quarter as it did see a slowing in industrial hauls — not surprising given what we’ve seen in the monthly manufacturing PMI data. Pricing remains firm and the continued rollout of automated truck routes continues to benefit waste segment margins.
The Stericycle business, which has been renamed WM Healthcare Solutions, accounted for about 10% of the quarter’s revenue with adjusted margins that were roughly half those for the waste business. To us, that margin difference is one of the opportunities for the Waste Management team, and at the company’s upcoming June 24 Investor Day, we look forward to more detailed integration plans and cost savings initiatives. That includes a granular look at achieving $250 million in annual run rate synergies by 2027.
While Waste has paused its buyback program, management shared on the earnings call that it continues to focus on identifying tuck-in acquisitions for the core waste business. The team expects to close on more than $500 million of solid waste acquisitions in 2025. During the Investor Day, we will be listening for similar nip-and-tuck plans for WM Healthcare Solutions.
We’ll be looking for more comments about the quarter when the Waste Management team presents at the Stifel 2025 Investor Summit on May 5. In the meantime, if WM the shares found their way back to the $215 level we would be interested buyers at those levels.
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At the time of publication, TheStreet Pro Portfolio was long WM and LH.
