To The Moon

$Waste Management(WM)$

Waste Management (WM) is one of those rare, defensive businesses that nearly every American interacts with—whether they realize it or not. From weekly household trash pickup to hauling away construction debris from major job sites, WM is deeply embedded in both municipal infrastructure and commercial activity across the U.S. and Canada.

The company is a market leader in environmental services, and its operational scale, long-term municipal contracts, and regulatory moat create a durable, cash-generating enterprise. Over the past 10 to 15 years, WM has been a reliable performer for long-term investors, providing both capital appreciation and a stable dividend yield.

But that reputation comes at a cost. As of today, WM trades at a valuation multiple that leaves little margin for error. In this article, we’ll analyze WM's historical performance, balance sheet, earnings profile, and future prospects—then assess whether its current valuation makes it a buy, hold, or sell.

Business Stability and Growth Trajectory

WM’s business model thrives on operational scale, long-term municipal contracts, and regulatory complexity that deters new competition. The result is an incredibly stable earnings profile. The company barely saw a dent in earnings during the 2008–2009 financial crisis (a ~10% decline), and its COVID impact was similarly modest.

Aside from those two anomalies, earnings have grown at a fairly consistent clip. WM’s long-term EPS growth rate averages around 11%, though this includes a few lumpy years, such as 2018, where a ~30% surge was likely influenced by tax reform rather than sustainable business growth.

After adjusting for these non-recurring effects and accounting for share buybacks (which enhance EPS), I estimate a more conservative forward-looking earnings growth rate of 9.85%.

WM's core strength lies in its consistency. The nature of the trash and recycling business is inherently stable: demand is largely non-cyclical, cash flows are predictable, and contracts with municipalities often span several years.

Historical earnings data backs this up:

• During the Great Recession (2008-2009), WM's earnings declined only about 10%.

• During the COVID-19 pandemic, the dip was even smaller.

This makes WM one of the few companies that can claim a near-recession-proof business model. Since 2010, its EPS growth has averaged around 11% annually, with very few down years. That said, not all growth periods are created equal:

• 2018 saw an abnormally high 30% earnings growth, likely due to corporate tax reform rather than improved operations.

• Adjusting for that anomaly and factoring in share repurchases, I arrive at a normalized EPS growth rate of 9.85%, which feels more sustainable looking ahead.

This growth rate is also in line with forward estimates from analysts, which forecast:

• +6% in Year 1

• +13% in Year 2

• +10% in Year 3

Balance Sheet and Enterprise Value Considerations

One factor that doesn’t always show up in basic valuation metrics is debt — and WM carries a significant amount of it. The company’s enterprise value is about 26% higher than its market cap, meaning that anyone buying the entire business (debt and all) is effectively paying a 25%+ premium to the share price alone.

Despite that, WM maintains an investment-grade credit rating and handles its debt responsibly. It’s not a major concern, but it does factor into valuation and return calculations, especially when using enterprise value as the price paid for the business.

While WM's business quality is outstanding, the balance sheet isn't debt-free. The company carries a fair amount of leverage, which is not unusual for a stable, cash-rich business. Still, it's important to factor that in:

• Enterprise value (EV) is about 26% higher than its market cap, reflecting debt obligations.

• Credit rating: Solidly investment-grade

From an investor's standpoint, this means the true price of owning the entire business—debt and all—is significantly higher than just the market cap alone. This matters when we look at valuation through an enterprise lens.

Valuation: Time Until Payback Model

Rather than focusing on traditional metrics like PE and EV/EBITDA alone, I like to use a practical framework called "Time Until Payback."”

Here’s the core question:

If you bought the entire business (debt included) for its current enterprise value, how long would it take to earn your investment back via the company’s annual net income?

Methodology:

1. Earnings Yield: Start by inverting the PE ratio, adjusting for enterprise value.

   Current PE: ~30

   Adjusted PE with debt: ~38

   Implied earnings yield: 2.6%

2. Initial Investment: Assume a $100 investment to simplify the math.

3. Earnings Growth: Apply the 9.85% annual earnings growth to model compounding over time.

Using this method, here are the projected earnings (in dollars earned per $100 invested):

• Year 1: $2.60

• Year 2: $2.86

• Year 3: $3.14

• Year 4: $3.45

• Year 5: $3.79

...and so on, with earnings compounding at just under 10% annually. The cumulative earnings catch up to the $100 investment around Year 16.

Interpretation:

• Under 10 years: Attractive valuation

• 10-12 years: Fair value

• 15+ years: Overvalued

At 16 years, WM is clearly in overvalued territory.

The Psychology of Holding Winners

It’s easy to understand why so many investors hang onto WM:

• If you bought WM 10 years ago, you’re up nearly 400%.

• The stock has rarely been volatile and pays a steady dividend.

• Selling could trigger taxes and a fear of missing out on more upside.

But these are emotional arguments, not rational ones. The data shows that WM has become a low-return investment at current levels, and downside risk is growing.

Historical Context:

• Prior to the Great Recession, WM traded around a 20 PE.

• Today, it trades at 30+ PE and an even higher EV multiple.

• If earnings simply stagnate and the valuation reverts, a 50-60% drawdown is plausible.

Why It’s So Expensive

Investors tend to bid up companies with these traits:

• Long track record of stability

• Strong brand and market dominance

• Low cyclicality and predictable cash flows

WM checks all those boxes. Many shareholders have owned it for 10+ years and seen tremendous returns — nearly 400% over the past decade. And with tax considerations in play, there’s not always a strong incentive to sell.

But here’s the problem: Valuation always matters eventually.

Let’s say earnings stagnate and the PE simply reverts back to the level it was in 2015. That would imply a 50–60% decline in the stock price, even if the business fundamentals stay intact.

Should You Sell?

If you own WM today:

Trimming or taking partial profits makes sense here — especially if you can pair it with losses elsewhere for tax efficiency. You might also just reduce exposure gradually over time and rotate into names with similar stability but better valuation.

• Consider trimming your position, especially if it's overweight.

• Use tax-loss harvesting in other names to offset gains.

• Rotate into undervalued, high-quality businesses with better payback profiles.

If you don’t own it:

This is not the time to initiate a position. Even with its defensive nature, a 2.6% earnings yield and a 16-year payback period offer little upside and plenty of valuation risk.

• Be patient. This is not the time to initiate a position.

• A pullback of 30-40% would bring WM back into a fair value range.

• Use a 10-year payback threshold as a personal buy signal.

Conclusion

Waste Management is the textbook example of a high-quality, recession-resistant business. It deserves a valuation premium—but not this much of one.

At a 16-year payback period, the math just doesn’t support buying at current levels. Even if earnings continue growing at nearly 10% per year, future returns are likely to be muted due to the high valuation base.

Summary:Business Quality: ★★★★★Growth Consistency: ★★★★☆Balance Sheet Let me know if you’d like this converted into a PDF report, YouTube script, or formatted with visuals for Substack or Medium.Health: ★★★★☆Valuation: ★☆☆☆☆Risk of Drawdown: Elevated

For long-term investors, it’s worth remembering:

Great companies can still be terrible investments at the wrong price.

Waste Management is a hold or a trim, not a buy.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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