The cheapest business among its much larger peers
Compared to its much larger peers Waste Management, Inc. (NYSE:WM) and Republic Services, Inc. (NYSE:RSG), Clean Harbors is the cheapest valued. Waste Management, Inc. (NYSE:WM) serves a diverse customer base with more than 21 million customers with 390 collection operations in 2012. According to the company, around 80% of the commercial and industrial customers have a contract with a length of 3 years or more. Both industrial and municipal customers are loyal to Waste Management, Inc. (NYSE:WM), staying with the company for around 10 years and 12 years, respectively, on average. Going forward, Waste Management, Inc. (NYSE:WM) expects to generate around $2.15 to $2.20 EPS, with the free cash flow of around $1.1 to $1.2 billion, after the estimated capital expenditure of $1.3 to $1.4 billion. Waste Management, Inc. (NYSE:WM), at $40.50 per share, is worth around $18.9 billion on the market. The market values Waste Management, Inc. (NYSE:WM) at a bit higher valuation, at nearly 8.3 times its forward EBITDA.
Republic Services, Inc. (NYSE:RSG) reported that more than 80% of its sales were annuity-type. Most of its revenue, 29% of the total revenue, was generated from the commercial business line, while the residential business line ranked second, accounting for 24% of the total revenue. For 2013, Republic Services, Inc. (NYSE:RSG) estimated to produce around $1.86 to $1.91 earnings per share, with the adjusted free cash flow of $675 to $700 million. For the full year, Republic Services plan to spend around $324 million to buy back its shares and pay around $447-$342 million in dividends. At $34 per share, Republic Services is worth around $12.3 billion on the market. The market values Republic Services at 8 times its forward EBITDA.
In terms of dividend yield, Waste Management is the winner with the highest dividend yield at 3.5%. Republic Services ranked second with 2.8% dividend yield while Clean Harbors has not paid any dividends yet. However, if Clean Harbors paid around 60% of its earnings in dividends to shareholders, its dividend yield would have been more than 2.6%.
My Foolish take
Clean Harbors seems to be a good pick now due to its lowest valuation and the possible synergies from Safety-Kleen deal. According to James Rutledge, the company’s vice chairman and CFO, Clean Harbors has tried to offer its customers a lot of services together so that Clean Harbors could become one-stop shopping for its customers. Barron’s thought that when the economy improved and the acquisition was accretive to earnings, its shares could gain by more than 45%.
The article This Waste Disposal Company Looks Interesting After the Recent Acquisition originally appeared on Fool.com.
Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Republic Services and Waste Management. The Motley Fool owns shares of Clean Harbors and Waste Management. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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