Waste Management Stocks to Gain from Fuel Surcharges Amid Iran Conflict

Overview#

Waste management companies are positioned to manage rising fuel costs linked to the ongoing conflict in Iran. Analysts from Barclays highlight that these companies have established surcharge programs that can help offset these increased expenses.

Key Players in Waste Management#

According to Barclays, companies like Waste Management (WM), Republic Services (RSG), and Clean Harbors (CLH) are expected to be the main beneficiaries of rising fuel and energy prices. Since the start of the Iran war, the waste management sector has outperformed the S&P 500 by about 2%, showing its resilience in a challenging economic environment.

Fuel Costs and Surcharge Programs#

Fuel costs typically account for around 3.7% of annual operating expenses for waste management firms. Barclays analysts believe that any increases in these costs will largely be offset by the companies' surcharge programs. For instance, Waste Management's program allows it to recover higher fuel costs dollar-for-dollar annually, although there may be a short delay in billing for residential contracts.

Individual Company Insights#

Republic Services has a fuel recovery fee program that effectively offsets higher fuel costs at a rate of 1.6 to 1, providing both revenue and margin benefits. Barclays estimates that a $0.50 increase in diesel prices could lead to a 0.7% rise in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for 2026.

Waste Connections primarily passes on higher costs through its base pricing, with surcharges covering 30% to 40% of its business. A similar increase in diesel prices could result in a 0.4% decline in adjusted EBITDA, although this does not account for potential increases in base prices.

GFL Environmental has improved its surcharge program to cover all direct fuel costs, while Casella Waste Systems also has a program that mitigates most of the impact from rising fuel prices. Clean Harbors updates its fuel recovery surcharge twice a month, which generally helps maintain profit margins in a rising price environment.