WM Q2 Earnings Beat Confirms Quality, But Rich Valuation Keeps Risk-Reward Unattractive

What happened

WM reported Q2 2026 revenue of $6.68 billion, up 4% year-over-year, and adjusted operating EBITDA of $2.07 billion, handily beating prior-year figures. Core collection and disposal pricing and volume both contributed, while the Stericycle-acquired healthcare unit likely remained a drag on reported earnings. The results confirm WM’s pricing power and stable demand, core attributes of its wide economic moat. However, the stock already trades at 34.5x trailing earnings and over 17x EBITDA, leaving limited room for multiple expansion. While the quarter underscores operational strength, the elevated valuation and ongoing execution risks in recycling, RNG, and Stericycle integration keep the risk-reward unattractive for value-oriented investors.

Implication

The earnings beat demonstrates WM’s ability to pass through inflation and sustain margin expansion despite cost pressures. Adjusted EBITDA growth to $2.07 billion provides ample cash to service debt and fund sustainability capex, but leverage at 3.64x net debt/EBITDA remains a concern. The Stericycle integration and recycling/RNG investments are still in early phases, with profitability yet to be proven and potential for further impairments. At 34.5x P/E, the market is pricing in flawless execution and strong returns on the $3 billion sustainability program, leaving no room for disappointment. We advise trimming positions or avoiding new purchases until either the valuation normalizes or clear evidence of value-accretive returns from growth projects emerges.

Thesis delta

The strong quarter slightly reinforces the moat and cash flow durability argued in our prior POTENTIAL SELL thesis. However, the incremental news does not materially alter the core concern that WM’s stock price already discounts optimistic growth scenarios and offers an inadequate margin of safety. Thus, our stance remains POTENTIAL SELL, with no shift warranted at this time.