New Waste Management Price Target Amid Margin Changes

After digesting Wednesday morning’s earnings call and Tuesday night’s earnings press release, we are lifting our Waste Management (WM) price target to $265 from $255 and resetting our checkpoint level to $215 from $200.

Backing that decision is the continued outlook for improving margins driven by selectivity and focus on the core residential waste business, and further margin gains at the Healthcare Solutions business, which is now “fully integrated” according to management.

In our view, for the next several quarters, Waste Management is likely to remain a margin driven story first, helped along by the power of incremental pricing and cost containment. Reading between the lines, that points to a stronger margin profile for the year, but it also doesn’t mean Waste’s revenue isn’t growing. Based on the company’s first half revenue of $12.9 billion and management’s midpoint revenue guidance of $26.375 billion, Waste should deliver around 4% revenue growth in H2 2026 compared to H1 2026.

But what should take center stage is the much faster growth in expected adjusted EBITDA. Management reaffirmed its 2027 adjusted operating EBITDA target between $8.15 billion and $8.25 billion versus the $3.9 billion achieved in the first two quarters of this year. That implies around 9% adjusted EBIDTA growth between the first and second half. And further integration and pricing action for the Healthcare Systems business bodes well for further margin gains in 2027. Meanwhile, further pricing steps in the core residential waste business as well as further pruning of less profitable routes should be another margin driver next year.

Despite a less than 1% negative revision in its top line for this year, Waste reaffirmed its free cash flow target between $3.75 billion and $3.85 billion. Here’s the thing: Waste’s first-half 2026 operating cash flow was $3.23 billion, up 17% year-over-year, but more impressive was its free cash flow of $2.02 billion, up 56% year-over-year, for the same period. As we mentioned above, management maintained its 2026 free cash flow implying roughly 29% year-over-year growth and if achieved that would mark a third consecutive year of 20% to 30% free cash flow growth. With more than 70% of its free cash flow target for the year already in hand, we would not be surprised to see those higher margins lead to a step up in free cash flow expectations for H2 2026.

That H1 2026 free cash level mentioned above includes the $235 million of solid waste M&A tuck-in transactions completed in the quarter. Given the expected free cash flow growth and Waste’s comment about the Healthcare Solutions business now being fully integrated, our thinking is the management team is likely to renew its focus on nip-and-tuck M&A transactions.

While Waste Management is the largest waste company in North America, roughly half the market is served by small- to mid-sized competitors. That gives the company ample room for the management team to further consolidate a fragmented waste industry and use its playbook to wring costs out of those acquired businesses.

Over time that points to rising EPS and cash flow levels that can be used to fund other acquisitions, buybacks or dividends. During Q2 2026, Waste repurchased $659 million in stock leaving about $2 billion under its current authorization.

As we see it, the Waste Management story is one worth sticking with, especially if margin expansion prospects and the ones for free cash flow are growing faster than the company’s top line.

Shares and Our rating

The Portfolio has some room to grow our exposure to WM shares, but in keeping with our Two rating we’re inclined to do so at lower prices. With that in mind, we would look to potentially add some additional shares and revisit our Two rating closer to $225.

More Pro Portfolio

At the time of publication, TheStreet Pro was long WM shares.