Executive Summary / Key Takeaways

• Waste Management is transforming into a comprehensive environmental solutions leader, leveraging its core collection and disposal business, strategic acquisition of WM Healthcare Solutions, and significant investments in sustainability. This integrated strategy is driving record profitability and positioning the company for accelerated free cash flow generation.
• The company achieved a record 30.6% operating EBITDA margin in Q3 2025, with its legacy business surpassing 32%, driven by optimized business mix, operational efficiencies, and scaling sustainability initiatives. This demonstrates robust execution despite commodity price headwinds and integration costs.
• Strategic investments in renewable natural gas (RNG) and recycling automation are delivering tangible benefits, with RNG production doubling year-to-date and automated recycling facilities more than doubling EBITDA margins. These technologies are structurally lowering costs and enhancing WM's competitive moat.
• The integration of WM Healthcare Solutions, while presenting near-term revenue and ERP challenges, is exceeding synergy capture expectations and unlocking significant cross-selling opportunities, contributing to a projected $250 million in annual run-rate synergies by 2027.
• Waste Management anticipates approaching $3.8 billion in free cash flow in 2026, fueled by the maturation of sustainability investments, continued strength in its core business, and the stabilization of WM Healthcare Solutions, enabling a return to targeted leverage levels and potential for substantial share repurchases.

A Foundation of Resilience: Waste Management's Evolving Leadership

Waste Management, Inc. (WM), founded in 1968, has long been North America's preeminent provider of comprehensive environmental solutions. Its enduring strategy of "focused differentiation and continuous improvement" has cemented its market leadership across the United States and Canada. This approach is rooted in leveraging an unparalleled asset network and investing in technology and automation to enhance operational efficiency and customer experience. The company's historical journey, marked by consistent organic growth and strategic acquisitions, has laid a robust foundation for its current transformation.

The waste management industry, while mature, is undergoing significant evolution. Customers increasingly demand greater resource recovery from complex waste streams, and governmental mandates for diversion and recycling are intensifying. This backdrop underscores WM's strategic pivot towards integrated solutions that extend beyond traditional collection and disposal, embracing sustainability and specialized services. The global plastic waste management market, for instance, is projected to grow from $39.58 billion in 2025 to $54.66 billion by 2034, reflecting a 3.65% CAGR, while the medical waste management market is expected to expand from $39.8 billion to $79.83 billion over the same period, at an 8.04% CAGR. These trends highlight the expanding opportunity set WM is actively pursuing.

Technological Edge: Driving Efficiency and Sustainable Growth

WM's strategic investments in technology and automation are central to its competitive differentiation and financial performance. The company's core technological advancements span its entire value chain, from landfill gas-to-energy facilities to automated recycling plants and sophisticated fleet management systems.

In its WM Renewable Energy segment, WM is a leading developer and operator of landfill gas-to-energy facilities. These facilities convert landfill gas into renewable electricity and renewable natural gas (RNG), a critical fuel source for its natural gas fleet. This technology offers tangible benefits, including the doubling of RNG production year-to-date in 2025, contributing higher year-over-year results to the segment. The company has eight additional RNG facilities on track for completion in 2025, with all but two plants expected to be fully constructed by year-end, positioning WM to harvest significant returns from these investments. These projects are also expected to qualify for federal tax credits through 2026, further enhancing their economic viability.

Within its Recycling Processing and Sales segment, WM has invested heavily in automation. These automated facilities are demonstrating superior performance, with EBITDA margins more than doubling compared to non-automated plants. This automation has led to a 30% improvement in labor efficiency and a 20%-plus reduction in operating costs, effectively insulating the business from commodity price volatility. The company continues to roll out next-gen recycling plants, with two new facilities in California and Texas, and seven more scheduled for 2025. This technological leadership allows WM to produce cleaner, higher-value recycled materials, commanding a price premium in the market.

Furthermore, WM's investments in fleet technology and digital platforms are enhancing operational efficiency across its collection and disposal businesses. Real-time telematics and advanced maintenance processes have reduced repair and maintenance costs by 60 basis points. This focus on a "people-first, technology-led" approach also extends to labor management, where improved driver retention, reaching a record low of 16.8% turnover, is a direct result of modernizing the work environment and investing in training. These technological differentiators contribute significantly to WM's competitive moat, driving lower costs, better margins, and a stronger market position by delivering a differentiated customer experience.

Strategic Expansion: WM Healthcare Solutions

A pivotal strategic move was the November 2024 acquisition of Stericycle, Inc. (SRCL), now integrated as WM Healthcare Solutions. This $7.20 billion acquisition significantly broadened WM's offerings into regulated waste and compliance services, including medical, pharmaceutical, and hazardous waste, as well as secure information destruction. The strategic value of this platform is increasingly evident, aligning with secular growth trends in healthcare driven by an aging population.

The integration of WM Healthcare Solutions has been a key focus, with operations successfully woven into WM's existing 16 areas. This streamlined structure facilitates the application of the "WM Way" playbook, fostering a culture of customer focus and continuous improvement. While the ERP system implementation for WM Healthcare Solutions has presented challenges, impacting customer onboarding and billing, management expects the "stabilization period" to conclude by the end of Q1 2026, with a "scalable and growth period" commencing in Q2 2026. This foundational work is crucial for unlocking the full potential of the acquisition.

Despite initial revenue trends being "more measured" due to a disciplined approach to customer engagement, including offering credits and deferring price increases, synergy capture has exceeded initial expectations. WM is on track to achieve the upper end of its targeted $80 million to $100 million in synergies for 2025, and a substantial $250 million in annual run-rate synergies by 2027. Cross-selling opportunities are proving strong, with examples such as a top hospital customer increasing annual spend by over $5 million by choosing WM as a single provider. This demonstrates the power of WM's integrated service model and its ability to maximize customer lifetime value.

Financial Strength and Outlook

Waste Management's financial performance in 2025 reflects the strength of its core business and the early benefits of its strategic investments. For the nine months ended September 30, 2025, WM reported net operating revenues of $18,891 million and consolidated net income of $1,967 million. Basic earnings per common share stood at $4.88.

The third quarter of 2025 showcased remarkable profitability, with a record operating EBITDA margin of 30.6% for the total company, and an even stronger 32% for the WM legacy business, surpassing the long-standing ambition of 30%. This margin expansion was driven by a favorable business mix, operational efficiencies in collection and disposal, and the scaling of sustainability businesses. Operating expenses as a percentage of revenue declined to 59.5% in Q3 2025, marking the second consecutive quarter below 60%. This improvement is a direct result of efficiency gains, improved labor turnover, and investments in fleet technology.

Cash flow generation remains robust, with net cash provided by operating activities increasing by $466 million to $4,345 million for the nine months ended September 30, 2025. Free cash flow for the same period was $2,114 million. Capital expenditures increased to $2,339 million, reflecting ongoing investments in trucks, equipment, landfills, and WM Healthcare Solutions, partially offset by a planned reduction in sustainability growth projects as they move from peak construction.

Looking ahead, WM's outlook is compelling. The company projects 2026 free cash flow to approach $3.8 billion, driven by the wind-down of sustainability investments, the ramp-up of related EBITDA, and the continued strong performance of its legacy business. Full-year 2025 revenue is expected at the low end of prior guidance due to weaker recycled commodity prices and revised WM Healthcare Solutions expectations, but operating EBITDA margin guidance has been increased to between 29.6% and 30.2%. This reflects confidence in continued execution and synergy capture. The permanent reinstatement of 100% bonus depreciation is expected to reduce cash taxes by approximately $125 million in 2025, further bolstering cash flow.

Competitive Landscape and Strategic Positioning

Waste Management operates in a highly competitive environment, facing governmental, quasi-governmental, and private service providers. Key direct competitors include Republic Services (RSG), Waste Connections (WCN), Clean Harbors (CLH), and Casella Waste Systems (CWST). WM's competitive advantages are rooted in its unparalleled scale, integrated asset network, and technological leadership.

WM's extensive network of landfills, transfer stations, and recycling facilities provides a significant logistical advantage, enabling greater efficiency in waste collection and disposal. This network allows for superior internalization rates, where WM processes its collected waste within its own infrastructure, optimizing costs and enhancing profitability. This contrasts with competitors who may rely more heavily on third-party disposal. The company's landfill capacity is particularly advantageous, as industry-wide capacity is expected to become constrained, especially in the early 2030s, positioning WM favorably for long-term pricing power.

In comparison to Republic Services, WM's broader geographic footprint and integrated service offerings, including its landfill gas-to-energy capabilities, provide a more comprehensive environmental solution. While RSG is known for operational efficiency, WM's strategic investments in automation and technology aim to match and surpass these efficiencies, as evidenced by its declining operating expenses as a percentage of revenue. Against Waste Connections, which focuses on smaller and mid-sized markets, WM's national scale and brand recognition offer a distinct advantage, particularly in securing large commercial and industrial contracts.

WM's acquisition of Stericycle has significantly bolstered its competitive standing in specialized waste. The WM Healthcare Solutions network is described as "unsurpassed," with no competitor coming close to its geographic reach and market position. This provides a strong moat in the regulated medical waste and secure information destruction markets, where Clean Harbors specializes in hazardous waste but lacks WM's breadth in medical waste. While WM faces intense pricing competition, its ability to offer bundled services and leverage its integrated network enhances customer loyalty and retention.

Risks and Challenges

Despite its strong position, WM faces several risks. The integration of WM Healthcare Solutions, particularly its ERP system, presents ongoing operational challenges that could impact customer service and financial performance until fully stabilized in 2026. Commodity price volatility, especially in recycled materials, remains a risk, as demonstrated by the $152 million impairment charge related to the temporary suspension of a plastic film recycling business due to market deterioration. Environmental remediation liabilities and ongoing litigation, including Superfund site involvement, pose potential financial exposures that could differ materially from current estimates. Furthermore, the company's temporary suspension of share repurchases to reduce debt highlights the capital intensity of its growth strategy, though this is expected to be temporary.

Conclusion

Waste Management is executing a compelling investment thesis, transforming its traditional waste management leadership into a diversified environmental solutions powerhouse. The company's strategic investments in sustainability, particularly in renewable natural gas and recycling automation, are yielding significant operational efficiencies and contributing to robust profitability. The acquisition of WM Healthcare Solutions, despite initial integration complexities, is proving to be a strategic "needle mover," unlocking substantial synergies and cross-selling opportunities that will drive future growth.

WM's disciplined approach to pricing, relentless focus on cost optimization through technology, and unparalleled asset network provide a strong competitive moat. The company's ability to consistently deliver strong financial results, evidenced by record operating EBITDA margins and a projected $3.8 billion in free cash flow for 2026, underscores its resilience and strategic foresight. As WM moves from a period of peak investment to one of harvesting returns, its commitment to deleveraging and potential for renewed share repurchases further enhances its appeal. For discerning investors, Waste Management offers a compelling blend of stable core business performance, high-growth strategic initiatives, and a clear path to enhanced shareholder value, solidifying its position as a foundational holding in a critical industry.