WCN, Waste Connections Inc.

Will it survive?

• Can it pay its interest? 5.1×
  Comfortable
  Operating income $1.7B ÷ interest expense $335M
  What this means

  Operating profit covers interest with the kind of margin Graham wanted for a defensive holding. Necessary, not sufficient, it says solvent, not cheap.

• How heavy is the debt, net of cash? $8.8B · 5.2× operating profit
  Heavy net debt
  Cash $46M − debt $8.9B
  What this means

  Netting $46M of cash and short-term investments against $8.9B of debt leaves $8.8B owed, about 5.2× a year's operating profit. Net debt is the leverage figure that matters: the cash is already set against the debt. Strategic or illiquid investments aren't counted here.

• How long is cash tied up? -12d
  Negative, funded by others
  DSO 40 + DIO 0 − DPO 51 days
  What this means

  Days cash is tied up between paying suppliers and collecting from customers. A negative cycle is a quiet moat: suppliers and customers fund the operation (Buffett's “float”), the company grows on other people's money. (Little or no inventory, a services / asset-light model, so the inventory leg is ~0.)

Is it a good business?

• Return on invested capital 6%
  Below average through the cycle
  10-yr median, range 3%–8%; 8% latest = NOPAT $1.3B ÷ invested capital $17.1B
  Industry peers: median 6%
  What this means

  The rate the business earns on the money tied up in it, Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; a return below the cost of capital (~8%) erodes value as a business grows rather than building it — the test Buffett weighs most. The headline is the median of the last 10 years (it ran 8% most recently), so one peak or trough year doesn't set the verdict. Asset-light businesses (R&D expensed, little capital) read artificially high, pair this with Owner Earnings.

• Owner-earnings margin 15%
  High through the cycle
  10-yr median margin, range 13%–18%; latest $1.2B = operating cash $2.4B − maintenance capex $1.2B
  Industry peers: median 6%
  What this means

  What an owner could take out without starving the business: operating cash less the maintenance capital it must spend to hold its position — Buffett's owner earnings. That's 13% of revenue this year, a 15% median across 10 years. Treating stock comp as the real expense it is (less $79M of SBC) leaves $1.2B.

• Are earnings backed by cash? 2.24×
  Cash-backed
  Cash from ops $2.4B ÷ net income $1.1B
  What this means

  How much of reported profit showed up as operating cash. Above 1× is reassuring; well below suggests earnings lean on accruals. One year is noisy, growth and working-capital swings distort it, and this is operating cash, not free cash. Watch the multi-year trend.

How is the cash used?

• Where do the earnings go? 68%
  Returns about half
  Dividends + buybacks $839M ÷ Owner Earnings $1.2B — this fiscal year
  What this means

  Of $1.2B Owner Earnings, $839M (68%) went back to shareholders, $334M dividends, $506M buybacks. Net of $79M stock comp, the real buyback was about $426M. Returning most of it is the mark of a mature business with little left to reinvest at a high return; reinvesting most could mean a long runway, or empire-building. The split doesn't say which; the return earned on it (see ROIC) does. This year's proportion is 68%; across the record (2016–2025) it is 38%, the capital-allocation section below.

• Investing or harvesting? 0.96×
  Maintaining
  Capex $1.2B ÷ depreciation & amortization as filed $1.2B
  What this means

  Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth, or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency, or a melting asset base). The ratio won't tell you which; the filings will.

The promise and the pay packet

• Is the buyback buying ownership, or mopping up? 0.8%
  The buyback only stands still
  Stock compensation $79M (fiscal 2025), 0.8% of revenue · repurchases $506M · diluted shares -0.0% since 2022
  What this means

  Stock handed to employees is a real cost paid in the owner's own currency: it is charged against profit, but the shares it creates are permanent. Many companies repurchase stock at the same time, which looks like a return of capital and often is not — if the count barely moves, the cash merely cancelled the pay packet and bought the owner nothing. The three states worth telling apart are a count genuinely shrinking, a count standing still despite large repurchases, and a count rising because the issuance was never offset at all.

Graham’s defensive tests · 5 of 5 met

Graham’s numerical criteria for the defensive investor (The Intelligent Investor, ch. 14), run on the filings. A floor of safety, not a buy signal; many fine modern businesses fail his strictest liquidity rules by design.

• Adequate size Pass
  Revenue ≥ $2B · $9.5B
  What this means

  Big enough to weather a storm. Graham's 1972 floor was ~$100M of sales (≈ $700M today); we use a $2B revenue line as a conservative modern stand-in.

• Strong liquidity —
  Current ratio ≥ 2× (waived for utilities) · exempt
  What this means

  Graham exempted public utilities from this test: their working capital “takes care of itself” through the continuous bond-and-share financing of growth, so a thin current ratio is the industry's structure, not a warning. His substitute test — debt no more than twice book equity — is the next line.

• Conservative debt Pass
  Debt ≤ 2× equity (Graham's utility test) · $8.9B vs $8.2B equity
  What this means

  Graham's own substitution for public utilities: debt not exceeding twice the stock equity at book value, in place of the working-capital tests an industrial faces. A utility finances its plant with bonds by design; the question is whether the borrowing stays inside the equity behind it.

• Earnings stability Pass
  A profit every year (10-yr record) · no losses
  What this means

  Graham wanted earnings in each of the past ten years, the stability a defensive owner leans on.

• Dividend record Pass
  Uninterrupted dividends · paid every year (10)
  What this means

  An unbroken dividend was Graham's mark of durability. He wanted twenty years; the filings show about ten, and a single suspension breaks the streak. Non-payers, many fine modern compounders, fall outside his defensive net by design.

• Earnings growth Pass
  Earnings +33% over the record · +79%
  What this means

  At least a third more earnings than a decade ago, averaging three years at each end. Net income (not per-share), so stock splits don't distort it, buybacks and dilution show up in the share-count line instead.

• Moderate price —
  P/E ≤ 15 and P/E × P/B ≤ 22.5 · decided by the price
  What this means

  Graham's valuation gate, the wall he kept between a sound business and a sound investment. Three-year average earnings are $3.25/share (latest year $4.27), the averaged base the calculator's gate runs on, and book value is $32.71/share. Enter a price in “What the price implies” just below for the P/E, P/B, and whether it clears. But this is the rule Buffett outgrew: there's no hard P/E law, and a wonderful business can deserve a far richer multiple if the thesis holds, treat it as the bargain-hunter's floor, not a verdict on the price.

Durability & moat, 2016–2025

Whether the record’s returns held, and what the capital reinvested earned.

• Profitable years 10 of 10
  What this means

  Never lost money over the record, the earnings stability Graham insisted on.

• Return on capital ≥ 15% 0 of 10 yrs
  What this means

  A moat shows up as a high return on invested capital that holds year after year, not one good vintage.

• Operating margin 15% → 15% (3-yr avg ends)

  In the filing’s words The filing ties gains to its own pricing, but names price competition too — pricing power that is real yet contested, not unopposed. The margin shows who is winning.

  What this means

  Through the cycle the operating margin held roughly steady — about 15% early, 15% lately, median 15%.

• Reinvestment, incremental ROIC 8%
  What this means

  Reinvested capital came back at only a modest incremental return — near the cost of capital, where extra growth adds little per dollar. The record shows whether it is a soft stretch or a thinning moat.

• Owner earnings growth +8%/yr
  What this means

  Owner earnings grew about 8% a year over the record.

• Worst year 2020 · 7.6% op. margin
  What this means

  Stayed profitable even in its hardest year, the resilience that survives recessions.

• Share count +1.2%/yr
  What this means

  The share count is rising, dilution works against you on a per-share basis.

• Dividend record rising
  What this means

  Paid and raised the dividend across the record, the continuity Graham prized.