A Member of Pat McKeough’s Inner Circlerecently asked about a company offering environmental and hazardous waste management. With three main businesses and more than 50 facilities, it provides a wide variety of services.
Improved industrial production in the U.S. should help Clean Harbors Inc., says Pat, but the company is subject to cyclical pressures, particularly in areas like the recycling of used oil. It also has high debt, but is seeking to control costs as it expands into new markets.
Q: Hi Pat: Can you take a quick look at Clean Harbors for me? Thanks.
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A: CLEAN HARBORS INC. (symbol CLH on New York; www.cleanharbors.com) through its subsidiaries, provides environmental and hazardous waste management services in North America. Its Technical Services segment collects, transports, treats, and disposes of hazardous and nonhazardous wastes. The SK Environmental Services segment provides confined space cleaning, recycling, demolition, and decontamination services. Industrial and Field Services targets the refinery, chemical, and oil sands drilling markets.
With over 50 waste management facilities, the company operates in 36 states, six Canadian provinces and Mexico.
The company’s revenue jumped 60.4%, from $2.2 billion in 2012 to $3.5 billion in 2013. That gain is mainly due to its December 2012 acquisition of Texas-based Safety-Kleen, which is the world’s largest re-refiner and recycler of used oil. Clean Harbors paid $1.3 billion for Safety-Kleen.
However, revenue then declined to $3.4 billion in 2014, and fell steadily to $2.8 billion in 2016. That’s because falling prices for crude oil forced it to cut the selling prices of its recycled oils. The drop in oil exploration activity also hurt demand from drillers for its lodging and environmental cleanup services.
Overall earnings rose 12.7%, from $84.8 million in 2012 to $95.6 million in 2013. The company sold shares to help pay for the Safety-Kleen purchase. As a result, earnings per share were unchanged at $1.57.
Earnings then fell to $1.53 a share (or a total of $92.4 million) in 2014 to $1.27 a share (or $74.1 million) in 2015. Due to a writedown, the company lost $0.69 a share (or $39.9 million) in 2016.
Growth stocks: Third quarter revenue rose despite hurricane damage
Hurricanes in recent months disrupted some of the company’s operations in Texas and Puerto Rico. Even so, its revenue in the third quarter of 2017 rose 3.6%, to $755.8 million from $729.5 million a year earlier. Excluding unusual items, earnings jumped 31.3%, to $0.21 a share (or a total of $12.2 million) from $0.16 a share (or $9.3 million).
Clean Harbors ended the quarter with cash of $361.7 million. Its long-term debt of $1.6 billion is a high 53% of its market cap.
U.S. industrial production continues to improve, which should help the company’s prospects. In addition, it has actively taken steps to control costs and restructure existing business lines (it recently sold off its Transformer Services unit). Furthermore, Clean Harbors continues to expand into newer markets.
The stock trades at a high 44.7 times its forecast 2018 earnings per share of $1.20.
Inner Circle recommendation: Clean Harbors is okay to hold for aggressive investors.
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