Waste Connections' Optimistic 2026 Guidance Faces Skepticism Amid Valuation and Execution Risks

What happened

A Seeking Alpha article highlights Waste Connections' path to double-digit EPS growth in 2026, citing robust 2025 results and guidance for 3.5-4.0% organic solid waste growth with margin expansion. However, the DeepValue master report rates the stock a 'POTENTIAL SELL' with moderate conviction, noting elevated valuations at ~71x P/E and ~22x EV/EBITDA that discount much of this optimism. The report emphasizes persistent volume headwinds, recurring environmental charges, and high capital intensity from M&A and RNG investments, which compress free cash flow and increase financial leverage. Despite the positive outlook, market sentiment has weakened, with the stock underperforming peers and analysts cutting price targets due to valuation concerns. Investors must critically assess whether the company can deliver flawless execution to justify current prices, especially given the minimal cushion for disappointment.

Implication

Current holders face heightened risk as even minor misses in organic growth or margin expansion could trigger significant price corrections given the stretched multiples. New investors should avoid entering at current levels and wait for a price reset to more attractive entry points, such as below $155 as suggested in the report. Close monitoring of quarterly results is essential to track pricing sustainability, environmental liability trends, and M&A integration success. The capital-intensive strategy increases balance sheet risk, requiring vigilance on leverage ratios and free cash flow generation. Overall, the risk/reward profile remains unfavorable until valuation de-rates or evidence of structurally higher free cash flow growth emerges.

Thesis delta

The new guidance confirms Waste Connections' growth narrative but does not alleviate the core concerns about valuation and execution risks highlighted in the DeepValue report. It reinforces that the stock's premium pricing demands near-perfect achievement of 2026 targets, with no material shift in the recommendation to trim or avoid new positions. Investors should remain cautious, as the thesis remains unchanged: wait for a better entry point or clearer signs of margin expansion and reduced environmental drag.