GFL Environmental: Still Undervalued

GFL Environmental (NYSE: GFL) has emerged from a period of strategic restructuring with a stronger balance sheet, higher margins, and a renewed focus on growth. Despite recent volatility in the waste management sector and mixed analyst sentiment, the company’s fundamentals suggest it remains undervalued. Let’s dissect the data to determine if investors should seize this opportunity.

Financial Resilience and Margin Expansion

GFL’s Q1 2025 results underscore operational discipline. Revenue rose 12.5% year-over-year (YoY) to $1.56 billion, driven by core pricing (5.7%) and organic volume growth (0.9%). The standout metric was Adjusted EBITDA, which surged 13.8% to $426.1 million, with a record margin of 27.3%—a 120-basis-point improvement over Q1 2024. This margin expansion reflects cost controls and synergies from past acquisitions, particularly in the U.S. and Canadian segments.

The balance sheet has also strengthened significantly. Net leverage fell to 3.1x, its lowest level in company history, after the March 2025 divestiture of its Environmental Services business. This deleveraging, combined with a cash position of $537.2 million, has positioned GFL to pursue strategic moves like share buybacks and M&A. The company repurchased 31.7 million shares in Q1, signaling confidence in its valuation.

Strategic Priorities and Growth Catalysts

Management has shifted focus to solid waste M&A, leveraging its improved financial flexibility. The divestiture of the Environmental Services division not only reduced debt but also redirected capital to higher-margin segments.

• Segment Performance:
• Canada: Revenue grew 13.9% (pro forma), with margins up to 27.9%.
• U.S.: Revenue rose 6.8%, and margins expanded to 33.8%.
• Combined Solid Waste Segment: Margin improved to 31.9%, highlighting operational consistency.

Forward guidance reaffirmed full-year 2025 targets, with management emphasizing the re-ignition of M&A. This strategy could unlock accretive growth, especially in a consolidating sector.

Near-Term Risks and Challenges

Bears point to Adjusted Free Cash Flow (FFC) dipping 2.7% YoY to $13.7 million, due to higher capex and working capital needs. While manageable, this underscores reliance on operational efficiencies. Additionally, macroeconomic risks—such as weakening commodity prices for recycled materials—could pressure margins.

Analysts also flag execution risks: organic growth fell 200 basis points below initial forecasts, and 2024 revenue guidance was downgraded. These challenges, combined with a “Neutral” rating from TipRanks’ Spark AI (citing high leverage and mixed technicals), temper enthusiasm.

Valuation Analysis: A Discounted Opportunity?

GFL’s EV/EBITDA multiple stands at ~8.5x, below its 5-year average of ~10x. This compression reflects lingering concerns about leverage and near-term FCF volatility. However, three factors suggest the stock is undervalued:

1. Margin Upside: The 120-basis-point margin expansion in Q1 hints at further optimization. If GFL sustains this trajectory, its multiple could expand toward historical averages.
2. Debt Reduction and Buybacks: With net leverage at 3.1x, the path to investment-grade ratings is clearer. This could lower borrowing costs and free capital for growth.
3. M&A Pipeline: The company’s $537 million cash buffer and strategic focus on solid waste acquisitions could unlock synergies and revenue streams, boosting long-term valuation.

Conclusion

GFL Environmental’s Q1 results highlight a company in transition: it has deleveraged successfully, improved margins, and reallocated capital toward high-growth areas. While risks like macroeconomic headwinds and execution challenges exist, the data supports a bullish thesis. The stock’s EV/EBITDA multiple remains compressed compared to peers, and its margin expansion and M&A potential suggest upward revaluation.

Investors should monitor Q2 results for sustained margin improvements and track M&A activity. If GFL can maintain its operational discipline and execute on growth initiatives, the stock could offer a compelling risk-reward trade-off. For now, the fundamentals align with the argument that GFL Environmental remains undervalued—a position worth considering for investors with a 1-3 year horizon.