Cleanaway Waste Mgt. Ltd (ASX: CWY) $2.40

With investors looking to diversify their market exposure this morning, we’ve revisited an old market favourite which is now trading on the inexpensive side after a rough 12 months. So far in 2026, CWY is underperforming the ASX, trading down almost 8%, although it has bounced well off its lows more recently.

As a refresher, CWY is Australia’s largest integrated waste management company, providing end-to-end waste collection, recycling, recovery and disposal services through three core divisions. Its Solid Waste Services business is the primary earnings driver, complemented by Liquid Waste & Health Services, which manages hazardous, medical and liquid waste, and Industrial & Waste Services, which delivers specialist industrial cleaning, shutdown and waste management solutions to the mining, energy, infrastructure and industrial sectors.

The chart below shows healthy top line revenue growth over almost a decade, posing the question of why the stock is down more than 25% from its 2022 high, especially when we consider the industrials have risen closer to 50% over the same period. The underperformance can be put down to the following events:

• Suez Acquisition — Revenue Without Earnings (2022):  Cleanaway’s transformational acquisition of Suez’s Australian assets, completed in 2022, nearly doubled the company’s revenue base. However, the integration proved far more complex and costly than expected, with higher labour, fuel and equipment costs more than offsetting the revenue uplift, driving earnings (EPS) down from A$0.071 in FY21 to just A$0.010 in FY23.
• Persistent Cost Inflation & Operational Incidents: Labour shortages drove increased reliance on overtime and subcontractors, while higher fuel, maintenance and borrowing costs lifted the company’s cost base. Operationally, a fire at the Christie Street liquid waste facility in St Marys disrupted the network and reduced efficiency, while the closure of the New Chum landfill after unsuccessful court appeals removed a profitable earnings stream and resulted in additional remediation costs. Together, these pressures significantly diluted the earnings benefits expected from the Suez acquisition.
• Repeated Guidance Misses: CWY’s biggest challenge has been a loss of investor confidence, driven by a pattern of earnings and cash flow misses and repeated guidance downgrades that have damaged management’s credibility. While management attributed the latest downgrade to temporary fuel cost inflation linked to Middle East tensions and delays in recovering those costs from customers, investors have remained sceptical given the company’s history of similar explanations and inconsistent execution.

The above trifecta has led to  the stock’s valuation de-rating, however, there are early signs that CWY’s turnaround is gaining traction. Solid Waste Services earnings (EBIT) rose 11% in 1H26, prompting management to lift the bottom end of FY26 EBIT guidance to $480–500mn. Looking further ahead, cost out via their Blueprint 2030 Phase 2 program are targeting more than 260 basis points of EBIT margin expansion and 10–15% annual EPS growth, while free cash flow is expected to strengthen as restructuring costs unwind and capital expenditure normalises.

• Another example of wealth destruction following an acquisition, the ASX is unfortunately littered with them.

Waste disposal and recycling should be a booming industry in today’s new environmentally focused world but it comes with risks, but at least CWY has the government on its side:

Supportive government policy aimed at lifting recycling rates and improving Australia’s self-sufficiency in waste processing provides a long-term tailwind for CWY’s growing post-collection infrastructure network. The company also has a strong pipeline of strategic projects—including the national Container Deposit Scheme (CDS) network, NSW FOGO processing facilities and the Western Sydney Materials Recovery Facility (MRF), which are expected to make an increasingly meaningful contribution to earnings over the medium term. Beyond this, Energy-from-Waste infrastructure represents another attractive long-duration growth opportunity, which should position Cleanaway to benefit from the transition towards a more circular economy and higher resource recovery rates.

While the turnaround is gaining traction, fuel cost inflation remains a key earnings risk, although the last 48 hours have helped here. Competitive pressures also remain elevated. The company is facing softer landfill volumes in Victoria amid aggressive pricing from competitors, while weaker activity across construction, manufacturing and mining could further weigh on waste volumes and earnings. Operationally, CWY operates in a highly regulated industry, exposing it to industrial relations, environmental and compliance risks. In addition, the successful integration of recent acquisitions, including Contract Resources, will be important to delivering the cost synergies and earnings growth embedded in management’s turnaround strategy.

On balance, we think CWY is likely to turn the corner sooner rather than later.

• We like the risk/reward towards CWY and can see a bullish rerating in the coming quarters if/when it starts to perform operationally – we’ve added CWY to our Hitlist.