Waste Stocks Set to Outperform Utilities by 2036

Lead

The waste-management sector has shifted from a defensive, low-growth utility proxy to a structural growth story with differentiated cash-flow characteristics. Institutional flows into infrastructure and ESG-linked services—spanning recycling, organics processing and advanced sorting—are changing revenue mix and margin profiles for major operators. U.S. municipal solid waste (MSW) volumes totaled 292.4 million tons in 2018, per the U.S. Environmental Protection Agency (EPA), and continued urbanization and consumption patterns suggest steady tonnage with higher per-ton value capture through recycling and energy recovery. Public filings show market leaders have reallocated capital toward higher-margin services: Waste Management (WM) and Republic Services (RSG) have expanded environmental services and industrial solutions since 2022, shifting revenue composition in favour of fee-based and contractual streams. This piece quantifies those shifts, compares sector multiples to utilities and infrastructure peers, and details what institutional investors should watch through 2036.

Context

The traditional view of waste companies — low growth, stable dividends, and limited multiple expansion — is being challenged by three converging forces: capital investment in sorting technology and anaerobic digestion, tightening regulation on landfill capacity and emissions, and rising commodity values for processed recyclables. Regulatory pressure in the EU and U.S. has increased compliance-related expenditures but also created longer-term contracted cash flows, especially for municipal and industrial services. Global research firms, including Grand View Research (2025), estimate the waste management market growing at roughly a 3.2% CAGR to the early 2030s, driven by services beyond plain collection. In comparison with utilities, waste operators have shorter asset payback periods on capital deployed into sorting and organics, and they often realise incremental margins on processed outputs—a structural difference that supports premium re-rating vs utilities under certain macro scenarios.

The sector is also being reshaped by M&A and consolidation: large-cap operators have been acquiring vertical services and tech-enabled logistics partners to lock-in unit economics and reduce volatility. These moves mirror the consolidation seen in other infrastructure-like segments (water, midstream) but with a faster path to margin expansion due to operational improvements rather than solely regulatory capture. Against a benchmark like the S&P 500 (SPX), waste equities have historically underperformed in high-growth cycles and outperformed during downturns; that beta profile is shifting as revenue growth becomes less cyclical. Data from company investor presentations and capital expenditure plans indicate incremental investments of 5–7% of revenue in technology and processing over 2024–26 cycles for the majors, introducing new margin levers.

Several macro risks remain: commodity cycles for recycled materials are volatile, and planned capacity increases can create near-term price pressure. That said, the structural moves toward contracted revenue and energy-from-waste reduce pure commodity exposure over a full cycle, distinguishing the large-cap waste operators from commodity recyclers.

Data Deep Dive

U.S. municipal solid waste generation stood at 292.4 million tons in 2018 (U.S. EPA, 2018) — the baseline for collection and processing volumes. Public filings indicate that large-cap firms have captured steady share of total MSW collection: Waste Management reported consolidated revenues at roughly $20.4 billion in FY2025 (WM Form 10-K, FY2025), while Republic Services reported revenues near $14.1 billion for the same period (RSG FY2025 report). Waste Connections (WCN) sits below those peers but has consistently posted mid-single-digit organic revenue growth, aided by municipal and commercial contracts. Year-over-year comparisons show major operators growing revenue faster than regulated utilities in several recent quarters: for example, WM and RSG delivered combined revenue growth of approximately 6–8% YoY in 2024–25, versus mid-single-digit revenue growth for the U.S. regulated utilities sector over the same span (company filings, sector reports, 2024–25).

On profitability, aggregate adjusted EBITDA margins for the large-cap waste firms have trended in the mid-20s percentile range (adjusted company disclosures, 2024–25). These compare favourably with regulated utilities' operating margins which are typically lower but supported by regulated returns—offering a trade-off between margin levels and regulatory certainty. Valuation multiples illustrate evolving market expectations: as of late 2025, consensus EV/EBITDA for the largest waste operators clustered around 12–15x, compared with 11–13x for broad utility peers (consensus sell-side estimates, Dec 2025). These spreads reflect both higher growth expectations and perceived robustness of fee-based contracts in the waste sector.

Capital intensity is material but manageable: typical capex intensity in the sector ranges from 5% to 9% of revenues, according to 2024–25 company disclosures. Investments targeted at sorting, automation and anaerobic digestion are intended to raise throughput margin per ton by capturing higher-value streams (e.g., plastics, organics-derived biogas) and reducing landfill diversion costs. Independent research firms project that advanced processing can increase per-ton revenue capture by 10–30% over legacy collection-only models depending on commodity recovery rates (industry white papers, 2024).

Sector Implications

The evolving economics have three immediate implications for investors and corporate strategy. First, large-cap waste operators are transitioning further into infrastructure-like business models, with longer-duration municipal contracts and recurring fee structures that reduce cash flow cyclicality. This transition is material: municipal contract lengths have been trending longer — five to 20 years depending on region — which creates clearer visibility over earnings and capital allocation. Second, margin expansion potential from technology and vertical integration provides a path toward outperformance versus regulated utilities and general industrials; measured, incremental capture of recyclables and energy streams can lift EBITDA per ton without proportionally increasing collection costs.

Third, the value-chain is bifurcating: pure-play recyclers and commodity-focused processors will remain higher-beta to commodity cycles, while diversified waste integrators with landfill, collection and environmental services portfolios will trade more like infrastructure. Comparatively, a diversified operator can deliver stable free cash flow with selective upside, whereas specialist recyclers will be more sensitive to commodity prices. For portfolio construction, that implies different roles: waste integrators as core infrastructure-like holdings (yield plus moderate growth) and specialized processors as higher-conviction satellite positions for alpha.

Regulatory developments will be a key catalyst. Europe’s Single-Use Plastics Directive and similar domestic recycling targets raise both costs and revenue opportunities: countries that implement higher landfill taxes can accelerate demand for higher-margin processing services. For institutional investors evaluating long-duration exposure, regulatory clarity and contract tenure are primary determinants of cash-flow stability.

Risk Assessment

Several real risks could impair the thesis and compress multiples. The first is commodity pricing volatility: recycled plastics and paper prices can unwind expected margin gains if global supply outpaces demand, particularly when new collection and processing capacity comes online faster than end-markets can absorb recovered materials. Second, execution risk on technology deployments is non-trivial; automated sorting and organics systems often require multi-year ramp-ups and high initial capex. Failure to achieve throughput or recovery targets would weaken the margin uplift scenario.

Third, policy and litigation risk exists around landfill emissions and permitting. While regulations can be a tailwind by raising barriers to entry, they can also create sudden compliance costs. A meaningful spike in input costs or capex requirements could compress near-term free cash flow and delay multiple expansion. Lastly, macro cyclicality—deeper recessions depressing industrial volumes or consumer waste generation—would test the defensive narrative. Even so, contractual revenue and municipal obligations provide a partial cushion.

Mitigants include long-term municipal contracts, diversified revenue streams (collection, processing, energy from waste), and the scale advantages of major operators which allow absorbing short-term price swings or funding capex. Active monitoring of per-ton recovery rates, contract renewal timelines, and regional regulatory developments is essential for a risk-aware institutional allocation.

Fazen Markets Perspective

Fazen Markets sees the waste sector as underappreciated in terms of optionality: the headline metrics—tonnage and collection—understate the embedded value in downstream processing and contracted services. A contrarian view is that the next decade's alpha will come not from collection scale alone but from the winners’ ability to commoditise recovery technology and lock in end-market channels for recycled outputs. In that scenario, valuation re-rating could be driven by structural EBITDA per ton improvements rather than pure multiple expansion.

We also highlight an oft-overlooked arbitrage: landfill-constrained markets with high disposal fees are markets where processing technology yields the highest return on invested capital. Institutions that localise exposure to these high-fee regions (rather than broad, national allocations) can capture asymmetric returns. Importantly, this is not a sector-wide call; selection and diligence on contract tenure, regional regulatory paths and technology performance are decisive.

Finally, from a portfolio construction standpoint, waste integrators can serve as an inflation-resistant income anchor with growth optionality—complementing utilities and infrastructure allocations—provided investors underwrite the execution risks on processing investments.

Outlook

Over the 2026–2036 horizon, our baseline scenario anticipates mid-single-digit revenue CAGR for diversified waste operators, driven by modest volume growth, pricing power on disposal fees, and rising per-ton revenue from processing. If companies can realise a 10–20% uplift in per-ton revenue via recycling and energy initiatives, sector EBITDA growth could outpace top-line increases and produce above-benchmark total returns for equity holders. Relative to regulated utilities, waste equities could trade at a premium where investors reward higher operational leverage and contracted revenue growth.

Key monitoring items through 2026–28 include: (1) recovery rates for key recyclables (plastics, paper), (2) new capacity additions and utilisation of advanced processing plants, (3) municipal contract renewal terms and length, and (4) shifts in landfill tax regimes at state and national levels. Institutional allocations should be dynamic: increase exposure where contracts and processing economics de-risk returns, and reduce exposure in regions facing commodity oversupply or regulatory uncertainty.

FAQ

Q: How cyclically sensitive are waste stocks compared with utilities? A: Historically, waste stocks exhibited lower cyclicality than industrials but higher than regulated utilities. The ongoing shift to contracted services and energy-from-waste reduces cyclical sensitivity further; however, pure-play recyclers remain commodity-sensitive and can show pronounced cyclicality during commodity price downturns.

Q: What historical precedent exists for a re-rating in the sector? A: The sector saw multiple expansions in the late 2000s and again in the 2010s when consolidation and the rollout of value-accretive services (e.g., single-stream recycling) increased margins. The current wave—technology-enabled recovery and longer municipal contracts—parallels past re-ratings but with a larger potential because energy and organics markets create additional revenue streams.

Bottom Line

Large-cap waste operators are transitioning toward infrastructure-like cash flows with incremental margin upside from processing and energy initiatives; selectivity and regional diligence will determine who captures the most value to 2036. Institutions should monitor contract duration, per-ton recovery metrics and regulatory trajectories when evaluating exposure.

Disclaimer: This article is for informational purposes only and does not constitute investment advice.