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We have retained our Neutral recommendation on pollution control company Calgon Carbon Corporation (CCC - Analyst Report) following its mixed first-quarter 2013 results, reported on May 6. Earnings topped the Zacks Consensus Estimate but sales missed. While Calgon Carbon is expected to gain from its cost reduction and pricing actions, it remains exposed to currency headwinds and weakness in its equipment business.

Why Maintained?

Calgon Carbon, a Zacks Rank #3 (Hold) stock, remains confident in its ability to balance the need for future investment with its responsibility to provide short-term returns. The company continues to see ballast water treatment, reactivation services and mercury removal as its basis for sustainable growth. It remains actively focused on improving margins across all regions.

Calgon Carbon’s strategic initiatives position it for significant growth in the longer term. Its reactivation facilities have remarkably supported its growth and have established its presence in several markets. The global demand for reactivation services is expected to climb as regulations for water quality strengthen around the world.

Calgon Carbon has also reduced its exposure to rising coal costs by identifying new sources of supply and a variety of coals that are effective in the manufacture of its high quality products. It has also embarked on aggressive cost reduction initiatives to boost margins. Calgon Carbon’s cost improvement program, which includes consolidation of operations and headcount reductions, is expected to contribute toward margin expansion.

We, however, remain cautious about the economic challenges that Calgon Carbon may face going forward. Moreover, unfavorable currency exchange movements may continue to weigh on the company’s revenues.

Moreover, lower sales from ballast water treatment systems continue to hurt sales in Calgon Carbon’s equipment business. It is also seeing weak demand for activated carbon in specific markets such as food and mercury removal. We remain on the sidelines considering these factors.

Other Stocks to Consider

Other companies in the pollution control industry worth considering are CECO Environmental Corp. (CECE - Snapshot Report), Industrial Services of America, Inc. and Pall Corporation (PLL - Analyst Report). While CECO retains a Zacks Rank #1 (Strong Buy), both Industrial Services of America and Pall holds a Zacks Rank #2 (Buy).

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