Shares of Clean Harbors, Inc. CLH have gained 51.5% over the past year, outperforming 19.3% growth of the industry it belongs to.
Let’s delve deeper into the factors which justify the stock’s retention in investors’ portfolio.
What’s Driving Clean Harbors?
Clean Harbors continues to grow with the help of multiple acquisitions in both new and existing markets. During the first nine months of 2019, the company acquired certain assets of a privately-owned business for $10.4 million (to boost its Safety-Kleen segment's core service offerings) and a privately-owned business for $14.9 million (to expand its environmental services and hazardous materials management services). In 2018, the company completed two acquisitions — a privately-owned company in August and the U.S. Industrial Cleaning Business of Veolia Environmental Services North America LLC (the "Veolia Business") in February. While the privately-owned company expands Clean Harbors’ environmental services and waste oil capabilities, Veolia boosts its U.S. Industrial Services business. The company witnessed $154 million of direct revenues from the Veolia Business in 2018 and $14.5 million revenues from its 2017 buyouts. Thus, acquisitions have been helping Clean Harbors expand its business across multiple lines of services and contributing to its top-line growth, thereby acting as a key growth catalyst.
The company continues to focus on improving its efficiency and lowering operating costs through advanced technology, process efficiencies and stringent cost management. In 2018, it managed internalization of maintenance costs, procurement and supply chain improvements, and branch consolidations to improve efficiency. Additionally, it eyes strategic investments in businesses, which are likely to increase productivity. By setting-up additional service locations near treatment, storage and disposal facilities (TSDF), the company expects to minimize capital expenditures and increase its market share.
The company has been consistently rewarding its shareholders through share buybacks. During the first nine months of 2019, Clean Harbors repurchased 0.2 million shares for a total of $16.4 million. In 2018, the company had repurchased shares worth $45.1 million. Such moves indicate its commitment to create value for shareholders and underline confidence in its business. These initiatives not only instill investors’ confidence but also positively impact earnings per share.
In spite of significant growth prospects, Clean Harbors is not free from headwinds. The company has a debt-laden balance sheet. As of Sep 30, 2019, long-term debt was $1.56 billion while cash and cash equivalents were $282.23 million. High debt may limit its future expansion and worsen risk profile.
The company’s demand cycle is highly seasonal in nature as customers' spending pattern is affected by weather and budgetary patterns. Presence of a large extent of manufacturing facilities and lodging operations in Canada exposes the company to foreign exchange rate risks. Notably, foreign currency translation had an unfavorable impact on the company's segmental growth during the first nine months of 2019.
Zacks Rank & Stocks to Consider
Currently, Clean Harbors carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Zacks Business Services sector are S&P Global SPGI, Accenture ACN and Booz Allen Hamilton BAH, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Long-term expected EPS (three to five years) growth rate for S&P Global, Accenture and Booz Allen Hamilton is 10%, 10.3% and 13%, respectively.
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