We recently compiled a list of the 10 Best Waste Management Stocks to Buy According to Analysts. In this article, we are going to take a look at where Clean Harbors, Inc. (NYSE:CLH) stands against the other waste management stocks.
The waste management industry is experiencing robust growth as industrialization and urbanization gather steam. Positive trends in government regulations and the use of advanced technologies in waste management are also fueling growth. According to Grand View Research the industry was valued at $1.29 trillion in 2022 and is projected to grow at a compound annual growth rate of 5.4% from 2023 to 2030.
The growth is expected to gather pace due to stringent government regulations pertaining to resource conservation and waste shipment regulation to improve service delivery. Escalating waste volumes from medical facilities industries to residential settings due to urbanization are also expected to impact the sector positively. The sector is also supported by factors such as the growth of smart cities and the rising use of integrated waste management systems.
READ ALSO: 10 Best Recycling Stocks to Buy According to Hedge Funds and 11 Best NYSE Penny Stocks to Buy Right Now.
The surge in hazardous waste is one of the factors strengthening the prospects of waste management companies. America has consistently topped the charts as the most wasteful country in the world, with over 239 million metric tons of garbage every year. While most people might perceive it as a threat to the environment and society, it presents a massive opportunity for waste management companies.
“It’s a profitable industry,” according to Debra Reinhart, a Board of Scientific Counselors member for the EPA. “It’s a difficult industry, but it is profitable if it’s done right.”
Consequently, advanced waste disposal methods and techniques have emerged as a result of growing awareness about proper waste disposal to preserve the health of humans and animals. Waste management companies must dispose of or recycle waste on time due to the presence of large quantities of hazardous compounds, including metals and salts.
The growing demand for efficient solid waste management frameworks and strategies that prioritize public security and economic development is a welcome for waste management companies. For starters, it’s made it possible for companies to hike prices for their services, citing their efficient solid waste management systems. The price increases have resulted in robust revenue growth and improved profit margins, allowing waste management companies to generate more shareholder value.
As long as there are people and companies who see trash as a resource rather than waste, the solid waste management sector will only keep growing. As governments worldwide agitate for a safe environment free of hazardous or other waste materials, companies engaged in waste management will always record booming business.
Similarly, as the US economy steers from recession following the Federal Reserve cutting interest rates for the second time, booming industrial activity is expected, resulting in more waste generated by factories. Likewise, consumer purchasing power has also been boosted, given the low interest rates in play, which should result in more waste volume due to increased spending on various items.
Consequently, waste management companies are on the cusp of booming business due to higher waste volumes. With most hiking prices amid limited opposition, now would be the best time to closely watch the best waste management stocks to buy as they are well poised to generate long-term value.
Our Methodology
To compile the list of the best waste management stocks to buy according to analysts, we scanned the stock market for companies engaged in all kinds of waste management. We then settled on waste management stocks that Wall Street analysts believe are well poised to explode backed by solid underlying fundamentals. Upon analyzing hedge fund sentiment and holdings, we ranked the stocks in ascending order based on their upside potential, as of November 22.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A truck filled with hazardous waste being safely unloaded at a recycling facility.
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)
Overall CLH ranks 6th on our list of the best waste management stocks to buy according to analysts. While we acknowledge the potential of CLH as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CLH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.