WM Shows Operational Strength but Valuation and Risks Loom Large

What happened

A Seeking Alpha article highlights Waste Management's resilience for 2026, citing strong margin expansion and robust cash flow despite revenue deceleration. The Healthcare Solutions segment delivered 53% year-over-year revenue growth, validating management's strategic diversification efforts amid legacy business sluggishness. In Q4, adjusted EBITDA margin rose by 240 basis points to 31.3%, supporting 14% adjusted EPS growth even with macroeconomic headwinds. However, the DeepValue master report maintains a 'POTENTIAL SELL' stance, noting the stock trades at elevated multiples like 34.5x P/E and approximately 200% above a conservative DCF estimate. The report also emphasizes ongoing risks including high leverage at 3.64x net debt/EBITDA, weak interest coverage, and execution challenges in Stericycle integration and sustainability projects.

Implication

WM's margin expansion and healthcare growth are positive, but the stock's high valuation multiples reduce the margin of safety for investors. With net debt/EBITDA at 3.64x and interest coverage below 5x, the balance sheet is strained, limiting financial flexibility. The integration of Stericycle and returns on recycling/RNG investments carry execution risks that could impair future earnings and cash flows. If WM fails to achieve profitability in Healthcare Solutions or deleverage as planned, stock performance may suffer, especially given the premium pricing. Therefore, aligning with the DeepValue report, investors should consider reducing exposure or awaiting a more attractive valuation before adding to positions.

Thesis delta

The new article underscores WM's defensive qualities and segment growth, which may bolster short-term investor confidence. However, it does not address the core valuation and risk issues raised in the DeepValue report, leaving the investment thesis unchanged with a bias towards caution. No material shift in the fundamental assessment is warranted at this time.