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Waste Management (WM) Stock May Be 14% Undervalued On Cash Flow

Simply Wall St · 2d ago

Waste Management has delivered a 5 year share price gain that many utility style businesses would envy, yet the current pullback this year raises a straightforward question for you as an investor. Do the cash flows of this waste and recycling giant support where the stock now trades, or has sentiment moved ahead of the underlying money it generates?

  • Over the past 5 years the stock is up 43.9%, which puts real weight on whether the company’s cash generation can carry that kind of compounding from here.
  • The business leans heavily on long term service contracts and high cash conversion, which can support a relatively steady stream of cash flows but also ties value closely to how efficiently it turns that revenue into free cash over time.
  • If you'd rather focus on earnings, this one's for you. See why Waste Management's 29.4x P/E tells a different valuation story.

The stock's next move may depend on whether that current share price is justified by the cash flows implied by a Discounted Cash Flow (DCF) view of Waste Management’s business.

If you want more context around whether Waste Management's recent share price swings line up with its cash flows, it can help to compare it with a broader list of 27 high quality undervalued stocks.

Does Waste Management Look Undervalued on Cash Flow?

The Discounted Cash Flow (DCF) model here is built around the cash Waste Management can return to shareholders over time. Over the last twelve months the group generated about $3.1b in free cash flow, and the projections used in this model assume that this pool of cash keeps growing rather than shrinking, consistent with a large, established service provider rather than a high flying growth story.

Those forecasts step free cash flow up into the mid $4b range by 2030, then ease into slower expansion in the following years, which fits a mature, contract heavy operation that already converts a meaningful slice of revenue into cash. On those inputs, the DCF suggests an estimated intrinsic value that sits modestly above the current share price of $210.10, indicating that the present market tag does not fully reflect the cash flows embedded in Waste Management’s current business profile. Find out what Waste Management could be worth using our Discounted Cash Flow (DCF) estimate.

The Waste Management Narrative: What Would Justify Today's Price?

Simply Wall St Narratives pick up where the valuation question leaves off and explain which assumptions about Waste Management's future growth, profitability and earnings would need to hold for the shares to be worth materially more or less than today, and they sit on the stock's Community page. Each one treats fair value as a specific thesis about how the business might develop over time so you can revisit it later and see how that view is tracking against reality.

One of the top community narratives on Waste Management: 19% undervalued

"The main thing that has to go right is that Waste Management turns its large investments in healthcare solutions, recycling automation and renewable natural gas into sustained cross sell, synergy capture and free cash flow conversion..."

Discover why this Narrative puts Waste Management at 19% undervalued.

One more Waste Management check that belongs beside the price tag

Before weighing Waste Management purely on cash flows and narratives, it helps to know that our broader review has flagged specific concerns that investors often want to inspect for themselves. Take a closer look at 1 warning sign before settling on a valuation.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.