Republic Services Exceeds 2025 Guidance, Yet Stock Remains Overvalued

What happened

Republic Services reported fourth-quarter earnings per share of $1.76, with net income and adjusted EBITDA margins expanding, and full-year 2025 results surpassing adjusted EPS and free cash flow guidance. The company generated $4.30 billion in cash from operations and $2.43 billion in adjusted free cash flow, funding $1.1 billion in acquisitions and $1.6 billion in shareholder returns. However, the stock trades at approximately 31 times earnings and 135% above a discounted cash flow value of $90 per share, indicating significant overvaluation. Operational successes are overshadowed by persistent risks, including environmental liabilities, regulatory pressures, and labor costs, which could impair future cash flows. Management's 2026 guidance will be closely watched, but current prices already reflect optimistic growth assumptions, offering limited margin of safety.

Implication

The earnings report confirms Republic Services' ability to deliver on its financial targets, reinforcing the quality of its oligopolistic waste franchise. However, the high valuation multiples leave the stock exposed to downside risks if growth expectations are not met or if environmental or regulatory issues escalate. Cash flow strength supports ongoing shareholder returns, but overpaying for shares at current levels could undermine long-term investment returns. Key areas to monitor include the integration of acquisitions, scaling of environmental solutions, and developments in landfill liabilities. For value investors, patience is advised, with a focus on opportunities where the price aligns more closely with intrinsic value estimates.

Thesis delta

The Q4 results reinforce the operational strength of Republic Services, but do not alter the core valuation concern. The thesis remains a 'WAIT' due to persistent overvaluation, with no significant shift in the investment stance.