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Bear of the Day

Clean Harbors delivered disappointing second quarter results in August, prompting analysts to revise their estimates significantly lower for both 2013 and 2014. It was also the company's 4th earnings miss in the last 5 quarters.

It is a Zacks Rank #5 (Strong Sell) stock.

Despite the poor earnings momentum, shares trade at a premium on a forward P/E basis. Investors should consider avoiding this stock until its earnings momentum improves.

Clean Harbors provides environmental, energy and industrial services throughout North America. It also provides used oil recycling and re-refining, parts washers and environmental services for the small quantity generator market through its Safety-Kleen subsidiary. The company is headquartered in Massachusetts and has a market cap of $3.5 billion.

Second Quarter Results

Clean Harbors reported disappointing second quarter results on August 7. The company reported EPS of 45 cents, which was well below the Zacks Consensus Estimate of 60 cents.

Total revenues came in at $860.5 million, below the consensus of $898.0 million. This shortfall was due in part to flooding in Canada, which affected both its Industrial & Field Services segment and Oil & Gas Field Services segment. The company also sold a lower percentage of blended products in its Oil Re-refining & Recycling segment.

Estimates Fall

While management stated that it "continue[s] to anticipate a stronger second half of 2013", the company still lowered its revenue and adjusted EBITDA guidance following the Q1 miss. This prompted analysts to revise their estimates significantly lower for both 2013 and 2014, sending the stock to a Zacks Rank #5 (Strong Sell).

The Zacks Consensus Estimate for 2013 is now $2.12 cents, down from $3.20 before the Q1 report. The 2014 consensus is currently $2.72, down from $3.20 over the same period.

You can see the negative earnings momentum over the last several months in the company's 'Price & Consensus' chart:

Weak earnings momentum isn't just a company-specific problem. The 'Waste Removal - Services' industry ranks in the bottom 8% of all industries that Zacks ranks.

Premium Valuation

Despite the negative earnings momentum, Clean Harbors trades at a 12-month forward P/E of 22, which is above the industry median of 19. Its price to cash flow ratio of 10x is also slightly above its peers at 9x.

The Bottom Line

With negative earnings momentum and premium valuation, investors should consider avoiding this Zacks Rank #5 (Strong Sell) stock until its earnings momentum turns around.

Todd Bunton, CFA is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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