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Covanta Signs Agreement With China to Develop EfW Project

Zacks Equity Research

Covanta Holding Corporation CVA recently announced that it has signed a concession agreement with Zhao County, China to build and operate Energy-from-Waste ("EfW") facility.

Covanta and a strategic local partner are the developer of the project, which is expected to provide sustainable waste solution. Construction of the project is expected to begin in early 2020 and is expected to be completed in less than two years. The project will have 1,200 tonnes per day waste processing capacity.

Experience in China

Covanta has prior experience in the Chinese market. The company and Sanfeng Environment had established a joint venture in 2007, which participated in the EfW market through project and technology development, construction and O&M services as well as equipment supply.

Long-Term Vision

China aims to build nearly 600,000 tonnes per day of EfW capacity by the end of 2020. The country aims to double its installed capacity as of the end of 2015. China will continue to work on waste solution and has laid out plans for the next decade.

The country’s administration has undertaken initiatives to construct more than 200 EfW facilities between 2020 and 2030. This is in sync with China’s sustainable waste treatment and landfill avoidance goals. Covanta, with its expertise in providing sustainable waste solutions, will have ample opportunities to get involved in other EfW projects in China over the next decade.    

Investment Initiatives

Over the past five years, the company has been investing substantially to purchase property, plant and equipment. These expenses were made to address the infrastructural need as well as expand customer base for various capital projects and acquisition. This has enabled Covanta to curb competition, increase safety and reliability of its EfW projects, provide solutions for solid and recyclable household wastes as well as replace aging infrastructure.

In the first nine months of 2019, the company invested $41 million in different growth projects. The company aims to invest nearly $60 million in different growth projects in 2019 to expand existing operation. This includes $10-million investments to strengthen international operation.

Growing Traction of Clean Energy

Besides wind and solar resources, energy generated from wastes is also considered clean energy. Per the US Energy Information Administration (EIA), Municipal solid waste (“MSW”), often called garbage, is used to produce energy at waste-to-energy plants and at landfills in the United States. MSW contains Biomass, paper, cardboard, food waste, grass clippings, leaves, wood and leather products.

To lower emission, U.S energy companies are also undertaking initiatives to increase clean generation. Recently, Dominion Energy D announced that it has entered into a partnership with Vanguard Renewables to extract methane from U.S. dairy farms for conversion to clean energy.

Price Performance

Covanta Holdings’ shares have gained 9.5% year to date compared with the industry’s rise of 4.4%.

Zacks Rank & Key Picks

Covanta currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks from the same industry are Bloom Energy Corporation BE and FuelCell Energy, Inc FCEL. Both the stocks hold a Zacks Rank #2 (Buy).

Bloom Energy’s long-term growth is at 25%. The company recorded an average earnings surprise of  60.12% in the last four quarters.

FuelCell Energy has delivered an average earnings surprise of 22.24% in the past four quarters. The Zacks Consensus Estimate of earnings for 2019 has moved up 58.12% on a year-over-year basis.

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