Waste Connections Touts Q4 Margin Expansion Amid Persistent Valuation and Execution Risks

What happened

Waste Connections reported fourth-quarter 2025 results, boasting a 110 basis point adjusted EBITDA margin expansion and framing it as a capstone to a strong year. However, this positive narrative masks underlying vulnerabilities highlighted in the DeepValue report, including sky-high valuation multiples of ~71x P/E and ~22x EV/EBITDA that price in near-perfect execution. The company's reliance on price-led organic growth and aggressive acquisitions faces headwinds from potential pricing pushback, recurring environmental charges, and leverage concerns. Full-year 2025 performance and the 2026 outlook must be critically assessed for sustainable growth beyond superficial margin gains, especially given past impairments and volume declines. Ultimately, while the quarterly results show operational discipline, they do little to offset the equity's rich valuation and embedded risks.

Implication

The margin expansion reinforces WCN's price-over-volume strategy, but investors must scrutinize whether core pricing above 5-6% can hold amid competitive and economic pressures. High valuation multiples imply that future growth is fully discounted, increasing downside risk if 2026 organic growth or margin targets are missed. Recurring environmental liabilities, as seen in past filings, could resurface and compress GAAP earnings, undermining the adjusted metrics touted in the press release. The acquisition-heavy model requires continuous capital deployment, which may strain free cash flow and balance-sheet flexibility if integration or returns falter. Therefore, the results support trimming or avoiding new positions until the stock price resets lower or clearer evidence of durable free-cash-flow growth emerges.

Thesis delta

The news confirms WCN's ability to deliver near-term margin expansion and execute on its price-led growth, aligning with the base case scenario. However, it does not shift the core thesis that the stock is overvalued with significant execution risks, particularly around organic growth sustainability and environmental headwinds. Thus, the 'POTENTIAL SELL' rating and conviction level remain unchanged, pending more attractive entry points or fundamental improvements.