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Covanta Wants Your Garbage

Posted: Jun 12, 2008 08:17 AM by Gregory S. Davis

Tickers in this Article: CVA, ED, WMI, AW

Each Friday morning I drag my huge garbage bin to the edge of my driveway and when I return home later in the day miraculously it's gone. Gone where? Probably to a landfill that's not doing anyone any good. Enter Covanta (NYSE:CVA), a company that has the expertise to turn trash into much needed energy while eliminating a majority of the waste it began with. It's been a venture that has been profitable for both the environment and its investors.

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How much energy are we talking about?
Fairfield, NJ based Covanta is already processing 15 million tons or 6% of the municipal solid waste created in the U.S. each year and turning it into clean energy. The conversion process, known as energy-from-waste (EfW), creates 8.3 million megawatt hours of electricity. One megawatt of electricity is enough to power about 1,000 homes. (For more companies trying to reduce their environmental footprint, read Five Companies Leading The Green Charge.)

New York Needs Energy
Record levels of energy demand have led New York to establish a Renewable Energy Task Force that has made a recommendation for the state to get 25% of New York City's electricity from renewable energy by 2013. Con Edison (NYSE:ED) of New York, NY reported a record usage of 14.7 million megawatt hours during the freezing cold months of December through February of this year. As municipalities begin to run out of room in their landfills along with the rising monetary and environmental costs associated with creating electricity from coal, Covanta stands poised to solve both problems.

Is Covanta Profitable?
For the first quarter of 2008 Covanta's revenue increased 18% to $389 million led by a 9% increase in its Waste and Service revenue and a 34% increase in its electricity and steam sales. Revenues were also driven by a series of cash acquisitions made last year including EfW facilities, biomass facilities and waste transfer stations within the U.S. Covanta's earnings also benefited from the bump in revenue by entering into positive territory with a reported $18.7 million for the first quarter.

Last year Covanta secured a contract to build an EfW plant in the city of Dublin, Ireland. In China Covanta has partnered with a local EfW plant operator in one case. In another case Covanta has teamed with one of the largest electricity providers in the Guangdong Province to build and operate EfW facilities.

Similar Energy from Waste Players
Waste Management (NYSE:WMI) is one of the largest waste and environmental services in the

U.S

. Waste Management has its own waste to energy program that focuses on methane gas from its network of landfills. Allied Waste Industries (NYSE:AW) is another

U.S.

leader in waste management and recycling to consider.

Renewable Focus
Covanta has taken a unique approach to renewable energy that has been right under our noses the whole time. I'm not sure if $4 per gallon gas prices are here to stay, but it's definitely promising to keep track of renewable energy sources that could power us into the future.

Feeling overwhelmed by rising oil prices? Check out Getting A Grip On The Cost Of Gas.

By Gregory S. Davis

Gregory S. Davis is an investment writer and consultant for his company G.Davis Capital Inc. His core methodology for choosing investments include patience, diversification and asset due diligence. Gregory is a graduate of the Wharton School of Business. He is also a board member of StoriesWork, a non-profit organization based in Durham, NC that uses storytelling to empower youth and individuals to utilize alternative dispute resolution tactics.

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