The United States generates more than 800,000 tons worth of garbage each and every day. At a cost of around $40 a ton, waste collection is big business. While residential collection is pretty recession resistant, people make garbage even if they aren't working; industrial waste production slows as the economy retracts. One industrial waste specialist is using the downturn to buy out rivals and increase its geographical foot print.
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Finding a Niche Player
Waste Management (NYSE: WMI) gets praise for its waste-to-energy efforts ,and French environmental services company Veolia (NYSE: VE) for its water treatment offerings. They are typically the first names associated with green environmental services investing. Equally as green and important, but often overlooked, is the area of hazardous waste collection and disposal. A tightly controlled industry, no hazardous waste landfills or incinerators have been built in over a decade, and government regulations have restricted companies from expanding into the space; this has shrunk the number of participants from 20 down to only five. Commanding 65% of the domestic hazardous waste incinerator capacity and 23% of the landfill space is Clean Harbors Inc. (NYSE: CLH), clearly the dominating force in this arena.
With its 47,000 different customers, including members of Fortune 500, the federal, state and local governments, Clear Harbors benefits from a diverse client base. In servicing this large base of clients, the company operates several highly specialized facilities, including six incineration centers, waste water treatment plants, waste oil recycling centers, nine landfills and twenty storage and disposal centers. The company is expanding its offerings and facilities as well; this was seen in Clean Harbor's purchase of Canada's EnviroSORT, a recycler of household harmful and e-waste, in late February.
Expanding Its Offerings
Recently, the Clean Harbors made a cash and stock offer for Canadian oil services company Eveready Inc. (TSX: EIS.TO). Clean Harbors gains valuable integration benefits through this buyout. The company can now add several energy industry specific environmental services to its arsenal, including advanced drilling fluid recycling, remediation and pipeline dewatering. The corporation also adds an additional hazardous landfill, one of only two in Alberta, as well as a class 1A deep-well for chemical and liquid waste disposal. The deal values Eveready at 200% premium, highlighting the barriers to entry in the industry.
Crunching the Numbers
Clean Harbors recently reported its 2009 first-quarter earnings on May 6. Revenue fell by 15% to $206.3 million, or 21 cents a share, which is below the analyst estimates of 41 cents. This was due to the slowing economy and customer plant temporary closures. CEO Alan McKim also stated during the conference call that weather, the weakness in the Canadian dollar and a reduction in fuel charges hurt revenue in the first quarter. Due to current market conditions, the company reevaluated its forward guidance to be flat compared with 2008, and EBITDA in the range of $163 million to $167 million. Shares trade at P/E of 23, not outrageous for a growth stock, and are about 40% below its 52-week high.
Bottom Line
Hazardous is an overlooked "green" industry, and due to the government regulations, it's also one with very high barriers to entry. As an industry leader, Clean Harbors is using the current economic downturn to its advantage and adding to its resource and service base via strategic buyouts. Long term investors looking for a growth stock in an increasingly important industry may want to give Clean Harbors further research. (Read Buy When There's Blood In The Streets, to learn how contrarian investors find value in the worst market conditions.)
