Clean Harbors Poised To Gain From Strategic Investments

On Mar 05, we updated the research report on waste management firm, Clean Harbors, Inc. (NYSE:CLH) .

The company is currently focused on enhancing its operating margins through better pricing policies, improving revenue mix, increasing efficiencies and capitalizing on growth initiatives, which are likely to aid its long-term growth potential. It is also expanding its existing services portfolio, especially in non-disposal services, with a view to generate incremental revenues in the future.

Healthy Growth Dynamics

In fourth-quarter 2017, Clean Harbors completed the acquisition of Veolia North America’s U.S. Industrial Cleaning Services Division for $120 million in an all-cash transaction, subject to customary post-closing adjustments. For 2017, the acquired company generated revenues of approximately $210 million. It employs roughly 1,300 employees and maintains an extensive fleet of vehicles and equipment at more than 60 operating locations across the United States.

The acquisition is likely to deliver numerous benefits to Clean Harbors’ customers, shareholders and industrial services employees. Likewise, this gives a scope for significant scale and industrial service capabilities while more than doubling the size of its existing U.S. Industrial Services business. The acquired business’ operational footprint, particularly its strong presence in the Midwest, complements Clean Harbors’ existing network of locations. The addition of this business will create new cross-selling opportunities and drive incremental volumes into Clean Harbors’ waste disposal network. This transaction is expected to enhance Clean Harbors’ long-term shareholder’s value and lead to healthy return on investments in 2018 and after.

Clean Harbors is focusing on improving its efficiency and lowering operating costs through enhanced technology, process efficiencies and stringent cost management. The company has a competitive advantage around the treatment, storage and disposal facilities.

In addition, Clean Harbors continues to generate significant free cash flow, which is utilized for increased dividend payments and strategic acquisitions. The company has also historically promulgated a conservative balance sheet with a healthy liquidity position. The stock has, however, underperformed the industry with an average year-to-date loss of 8.9% compared with a 2.3% decline for the latter.


Moving Forward

Clean Harbors’ Tech Services is expected to deliver higher profitability due to its new incinerator’s second full year of operation and the strength of the industrial economy, particularly the expansion in the chemical space. Its Safety-Kleen is on track for another solid year of profitable growth. The addition of Veolia’s U.S. industrial cleaning business is likely to enable the company’s industrial team to gain meaningful traction.

Also, the improving energy markets bode well for the company in multiple areas. Hence, we remain encouraged with the inherent growth potential of this Zacks Rank #4 (Sell) stock.

Better-ranked stocks in the industry include Republic Services, Inc. (NYSE:RSG) , Waste Connections, Inc. (NYSE:WCN) and Waste Management, Inc. (NYSE:WM) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Republic Services has a solid long-term earnings growth expectation of 10.2%. It topped estimates in each of the trailing four quarters with an average positive earnings surprise of 5.1%.

Waste Connections has a healthy long-term earnings growth expectation of 11%. %. It topped estimates in each of the trailing four quarters with an average positive earnings surprise of 5.2%.

Waste Management has a solid long-term earnings growth expectation of 10.9%. It topped estimates thrice in the trailing four quarters with an average positive earnings surprise of 0.9%.

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