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Drab Near-Term Prospects for Pollution Control Industry
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The Zacks Pollution Control industry comprises companies that provide innovative filtration systems, replacement parts, solutions for managing medical wastes, energy recovery devices and other products. Such products are primarily used in commercial, automotive repair, industrial, home healthcare, retail, pharmaceutical and hospitality end markets.
A few industry players offer solutions to deal with industrial waste and commercial chemical products as well as technologies to tackle air pollution. Also, one of the companies delivers services related to infrastructure, water, resource management, energy, etc. to government and commercial clients. Some notable firms in the industry are CECO Environmental Corp. , Donaldson Company, Inc. (DCI - Free Report) and Fuel Tech, Inc. (FTEK - Free Report) .
Here are the industry’s three major themes:
Stringent government regulations, increasing pollution-related health concerns and growth in task orders, backed by higher infrastructure-related work in the United States are driving demand for pollution-control technologies and services. Also, surging demand for pollution-abatement technologies in the emerging markets is encouraging for the industry. For instance, companies belonging to this industry continue to market pollution abatement technologies in several European countries successfully following the European Union's Industrial Emissions Directive in BREFs. Additionally, the need for engineering and assessment services in disaster-related work is creating a solid demand environment for the industry players.
Rising preference for alternative fuels for power generation in an effort to reduce dependency on coal, particularly in the United States and across developed European countries are restraining demand for industrial emission-abatement products. Also, due to a conservative capital budget, U.S. shale drillers may lower rigs in the oil patches. In addition, a weak crude pricing scenario is not favorable for drilling activities in the shale resources. This is likely to create a lower demand environment for pollution-control equipment manufacturers.
The pollution-control equipment manufacturers are required to constantly update products and services, based on the guidelines of the pollution control boards in several countries. Such frequent investments often dent profitability of the industry participants. Also, inflationary pressure on account of tariffs regarding import of various categories of goods has been inducing supply-chain issues and weighing on the profitability of several industry participants. Further, shortage of skilled workers owing to tight labor market in the United States is a persistent concern for industry players.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Pollution Control industry is an 11-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #162, which places it at the bottom 36% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bearish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are keeping less faith with this group's earnings growth potential. Notably, the industry’s earnings estimates for the current year are 14.3% down from the year-ago period.
Before we discuss a few stocks from the industry, it’s worth taking a look at the industry’s shareholder returns and its current valuation.
Industry Outperforms S&P 500 & Sector
The Zacks Pollution Control industry has outperformed both its sector and the S&P 500 in the past year. While stocks in this industry have collectively rallied 8.4%, the S&P 500 has inched up 1.5%. The Zacks Industrial Products sector has declined 10.8%.
One-Year Price Performance
Pollution Control Industry’s Valuation
Price/Earnings (P/E)ratio is commonly used for valuing pollution control stocks.
The industry currently has a forward 12-month P/E of 19.8X compared with the S&P 500’s 16.58X. It is trading above the sector’s forward 12-month P/Eof 15.22X.
Over the past five years, the industry has traded as high as 22.47X and as low as 14.23X with the median of 18.26X, as the chart below shows.
Pollution Control Industry’s Valuation Versus S&P 500
Pollution Control Industry’s Valuation Versus Sector
Bottom Line
On account of the prevalent headwinds, we believe that investments in the industry may not be prudent at the moment.
However, we present four promising pollution-control stocks, which possess the potential to sail through the tough market conditions.
A brief discussion on the chosen stocks is provided below:
Sharps Compliance Corp. : Headquartered in Houston, TX, this leading provider of medical, pharmaceutical and hazardous waste management services has soared 51.6% over the past year. The company’s earnings surprise in the last reported quarter was 100.00%.
Also, the Zacks Consensus Estimate for fiscal 2020 (ending June 2020) earnings has moved 50% up to 9 cents over the past 60 days. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Surprise: SMED
Tetra Tech, Inc. (TTEK - Free Report) : This Pasadena, CA-based company currently carries a Zacks Rank #2 (Buy). Over the past year, the stock has gained 30.9%. The bottom line surpassed estimates in each of the trailing four quarters, the average being 8.31%.
The Zacks Consensus Estimate for fiscal 2020 (ended September 2020) earnings has been raised 1.4% to $3.51 over the past 60 days.
Price and Surprise: TTEK
We also present two more companies, which investors may prefer holding on to at current levels:
Energy Recovery, Inc. (ERII - Free Report) : Domiciled in San Leandro, CA, this Zacks Rank #3 (Hold) company has gained 2.9% over the past year. The company surpassed estimates in each of the trailing four quarters, the average being 95.84%.
Price and Surprise: ERII
LiqTech International, Inc. (LIQT - Free Report) : This Denmark-based company currently carries a Zacks Rank of 3. The company’s positive surprise in the last reported quarter was 50.00%.
The Zacks Consensus Estimate for current-year earnings has been stable at 2 cents over the past 60 days.
Price and Surprise: LIQT
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Drab Near-Term Prospects for Pollution Control Industry
The Zacks Pollution Control industry comprises companies that provide innovative filtration systems, replacement parts, solutions for managing medical wastes, energy recovery devices and other products. Such products are primarily used in commercial, automotive repair, industrial, home healthcare, retail, pharmaceutical and hospitality end markets.
A few industry players offer solutions to deal with industrial waste and commercial chemical products as well as technologies to tackle air pollution. Also, one of the companies delivers services related to infrastructure, water, resource management, energy, etc. to government and commercial clients. Some notable firms in the industry are CECO Environmental Corp. , Donaldson Company, Inc. (DCI - Free Report) and Fuel Tech, Inc. (FTEK - Free Report) .
Here are the industry’s three major themes:
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Pollution Control industry is an 11-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #162, which places it at the bottom 36% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bearish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are keeping less faith with this group's earnings growth potential. Notably, the industry’s earnings estimates for the current year are 14.3% down from the year-ago period.
Before we discuss a few stocks from the industry, it’s worth taking a look at the industry’s shareholder returns and its current valuation.
Industry Outperforms S&P 500 & Sector
The Zacks Pollution Control industry has outperformed both its sector and the S&P 500 in the past year. While stocks in this industry have collectively rallied 8.4%, the S&P 500 has inched up 1.5%. The Zacks Industrial Products sector has declined 10.8%.
One-Year Price Performance
Pollution Control Industry’s Valuation
Price/Earnings (P/E)ratio is commonly used for valuing pollution control stocks.
The industry currently has a forward 12-month P/E of 19.8X compared with the S&P 500’s 16.58X. It is trading above the sector’s forward 12-month P/Eof 15.22X.
Over the past five years, the industry has traded as high as 22.47X and as low as 14.23X with the median of 18.26X, as the chart below shows.
Pollution Control Industry’s Valuation Versus S&P 500
Pollution Control Industry’s Valuation Versus Sector
Bottom Line
On account of the prevalent headwinds, we believe that investments in the industry may not be prudent at the moment.
However, we present four promising pollution-control stocks, which possess the potential to sail through the tough market conditions.
A brief discussion on the chosen stocks is provided below:
Sharps Compliance Corp. : Headquartered in Houston, TX, this leading provider of medical, pharmaceutical and hazardous waste management services has soared 51.6% over the past year. The company’s earnings surprise in the last reported quarter was 100.00%.
Also, the Zacks Consensus Estimate for fiscal 2020 (ending June 2020) earnings has moved 50% up to 9 cents over the past 60 days. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Surprise: SMED
Tetra Tech, Inc. (TTEK - Free Report) : This Pasadena, CA-based company currently carries a Zacks Rank #2 (Buy). Over the past year, the stock has gained 30.9%. The bottom line surpassed estimates in each of the trailing four quarters, the average being 8.31%.
The Zacks Consensus Estimate for fiscal 2020 (ended September 2020) earnings has been raised 1.4% to $3.51 over the past 60 days.
Price and Surprise: TTEK
We also present two more companies, which investors may prefer holding on to at current levels:
Energy Recovery, Inc. (ERII - Free Report) : Domiciled in San Leandro, CA, this Zacks Rank #3 (Hold) company has gained 2.9% over the past year. The company surpassed estimates in each of the trailing four quarters, the average being 95.84%.
Price and Surprise: ERII
LiqTech International, Inc. (LIQT - Free Report) : This Denmark-based company currently carries a Zacks Rank of 3. The company’s positive surprise in the last reported quarter was 50.00%.
The Zacks Consensus Estimate for current-year earnings has been stable at 2 cents over the past 60 days.
Price and Surprise: LIQT
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>