6. Clean Harbors, Inc. (NYSE:CLH)
Market cap as of November 22, 2024: $13.48 Billion
Number of Hedge Fund Holders: 44
Stock Upside Potential: 7.47%
Clean Harbors, Inc. (NYSE:CLH) is a waste management company that collects, transports, treats and disposes hazardous and non-hazardous waste. It also deals in landfill disposal and wastewater treatment. The stock has outperformed the overall market by a 46.52% year-to-date gain, attributed to its strong market position and successful adaptation to sector demands.
The outperformance in the first half of the year was fueled by high demand in the Environmental service segment. Clean Harbors, Inc. (NYSE:CLH) also benefited from the contributions of its recent acquisition, HEPACO. The outperformance continued in the third quarter as the company delivered profitable growth in its operating segments on October 30, 2024.
Revenue in the quarter grew 12% year over year to $1.53 billion as income from operations increased 25% to $192.3 million. Net income was up 26% to $115.2 million. The strong performance comes from the Environmental Services (ES) segment’s underlying demand remaining strong. Safety-Kleen Sustainability Solutions’ (SKSS) segment results showed softer-than-expected base oil and lubricant demand and pricing throughout the quarter, with a more significant decline in September despite higher Adjusted EBITDA.
Consequently, the company expects its full-year EBITDA to range between $1.10 billion and $1.12 billion, representing 10% year-over-year growth. It also expects free cash flow to range between $280 million and $320 million.
Here is what Merion Road Capital said about Clean Harbors, Inc. (NYSE:CLH) in its first quarter 2024 investor letter:
“During the quarter, I uncharacteristically built a position from nothing into our top holding. Clean Harbors, Inc. (NYSE:CLH) is the largest US hazardous waste management company. Before digging into CLH, I would like to diverge with a bit of personal history. In my early 20s, I worked at Macquarie Bank, where our team was responsible for acquiring investments on behalf of our managed infrastructure funds and the bank’s balance sheets. One of my first assignments was the acquisition of a publicly traded municipal solid waste (MSW) management company (Waste Industries). While not technically infrastructure per-se, MSW has similar characteristics like being an essential service, operating regional monopolies, and controlling scarce assets. In any case, we paid something like 8-9x EBITDA, which was a premium to the then trading multiple. Waste Industries is now a small part of GFL Environmental, which trades at 12x EBITDA. And GFL is actually at a notable discount to its peers of Waste Management, Republic Services, and Waste Connections, which are at 15x. While hindsight is 20/20, buying into this asset class 15 years ago would have been a home run given their strong cash flow and multiple expansions.
While hazardous waste is not entirely comparable to their MSW brethren, CLH has many attractive attributes. They own and operate scarce assets, including nine incinerators and eight landfills, where a complex permitting process and significant construction costs limit new supply. They maintain vertically integrated operations that allow it to control waste from collection through transportation and disposal; this activity similarly requires specialized permits for which the company holds over 500. As the largest player in the space, CLH has a proven history of managing waste properly – a key consideration amongst customers given environmental ramifications. They also have scale benefits that include route-based efficiencies, capacity utilization, and the deepest breadth of service offering…” (Click here to read the full text)
