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Bright Near-Term Outlook for Waste Removal Services Industry

Zacks Equity Research

The Zacks Waste Removal Services industry comprises companies that are engaged in collection, transport, treatment, disposal, inspection and regulation of any form of waste. The companies serve residential, municipal, commercial and industrial customers in the United States and internationally.

Here are the industry’s three major themes:

  • The industry is mature with growth coming from volume and price increases. Revenues and cash flows remain fairly stable through the economic cycle, enabling most industry players to pay out stable dividends. Per a recent report, the global waste management market is projected to witness CAGR of 6% from 2018 to 2025 to reach $484.9 billion.
  • Rising environmental concerns are expected to enhance business opportunities for waste management companies. Stringent government rules and regulations for sustainable waste management and increasing number of initiatives undertaken to put a check on illegal dumping should drive demand. The Environmental Protection Agency’s (EPA) Resource Conservation and Recovery Act (RCRA), aimed at reducing open dumping and managing hazardous and non-hazardous waste, will significantly benefit the industry.
  • Growing adoption of technologies and advanced collection and recycling solutions are key trends within the industry. Recycling remains a major growth area, with most industry players undertaking municipal solid waste and non-hazardous industrial waste recycling measures.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Waste Removal Services industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #83. This rank places it in the top 32% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term growth prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and current valuation.

Industry Outperforms Sector and S&P 500

The Zacks Waste Removal Services Industry has outperformed the broader Zacks Business Services sector as well as the Zacks S&P 500 composite over the past year.

The industry has gained 13.0% over this period compared with 9.6% gain of the broader sector and 3.0% rise of the Zacks S&P 500 composite.

One-Year Price Performance

 

Industry’s Current Valuation

On the basis of EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization), which is commonly used for valuing waste removal services stocks because of their high debt levels, the industry is currently trading at 12.31X compared with the S&P 500’s 10.63X and the sector’s 11.42X.

Over the past five years, the industry has traded as high as 12.31X, as low as 8.27X and at the median of 9.70X, as the charts below show.

EV/EBITDA Ratio

 

 

Bottom Line

Increasing environmental awareness, rising population and rapid industrialization and urbanization should continue to drive demand. Government initiatives toward sustainable waste management should provide incremental opportunities.

Two stocks in the Zacks Waste Removal Services universe currently carry a Zacks Rank #2 (Buy). Below, we have also mentioned one more stock from the same industry, which we believe investors should hold on to as it carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Let’s take a look at the stocks.

Clean Harbors (CLH): This Massachusetts-based company provides environmental, energy and industrial services in North America. Currently, it has a Zacks Rank #2. The Zacks Consensus Estimate for current-year EPS has remained unchanged in the past 60 days.

Price and Consensus: CLH

 

Advanced Disposal Services (ADSW): This Florida-based company provides non-hazardous solid waste collection, transfer, recycling, and disposal services. Currently, it carries a Zacks Rank #2. The Zacks Consensus Estimate for current-year EPS has increased 1.5% in the past 60 days.

Price and Consensus: ADSW

 

US Ecology (ECOL): This Idaho-based company provides environmental services to commercial and government entities in the United States, Canada, and Mexico. Currently, it has a Zacks Rank #3. The Zacks Consensus Estimate for current-year EPS has remained unchanged in the past 60 days.

Price and Consensus: ECOL

 

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US Ecology, Inc. (ECOL) : Free Stock Analysis Report
 
Clean Harbors, Inc. (CLH) : Free Stock Analysis Report
 
Advanced Disposal Services Inc. (ADSW) : Free Stock Analysis Report
 
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