Waste Management: Bullish Article Clashes with Deep Value Caution

What happened

A new Seeking Alpha article rates Waste Management a Buy, citing a healthcare solutions turnaround, strong core pricing, and nearing completion of recycling and RNG investments. The article argues the stock trades at a discount to peers and its historical average, suggesting potential multiple re-rating. However, our latest deep value analysis maintains a POTENTIAL SELL stance, driven by valuation at ~34.5x P/E and ~17.3x EV/EBITDA, with a conservative DCF implying ~200% downside to current price. Key risks include elevated leverage (net debt/EBITDA 3.64x, interest coverage 4.91x) and execution uncertainty around Stericycle integration and sustainability projects. While the healthcare segment's profitability is improving, it still posted a $69 million loss in 2024, and recycling/RNG returns depend heavily on commodity prices and renewable fuel credits.

Implication

The article's Buy case rests on a healthcare turnaround that is not yet fully evident in financial results, with WM Healthcare Solutions still loss-making. While recycling automation and RNG projects are nearing completion, their returns are sensitive to volatile commodity prices and policy incentives, adding risk. The stock's current discount to peers may reflect justified concerns about integration and leverage rather than a clear mispricing opportunity. Until there is concrete evidence of healthcare margin improvement, deleveraging below 3x, and stable project returns, the valuation lacks a sufficient margin of safety for value investors. Therefore, we maintain the POTENTIAL SELL stance: consider trimming positions or avoiding new purchases at current levels.

Thesis delta

The new article highlights a healthcare turnaround and near-completion of sustainability investments, which could improve future earnings. However, these factors were already identified as watch items in our analysis, and they have not yet translated into improved financials sufficient to alter the valuation. Thus, the core thesis remains POTENTIAL SELL, with the stock still priced for perfection despite execution and commodity risks.