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On Dec 2, we reaffirmed our Neutral recommendation on pollution control company Calgon Carbon Corporation (CCC - Analyst Report). While the company should gain from its cost reduction and pricing actions, it remains exposed to currency headwinds and weakness in its equipment business.

Why Kept?

Both revenues and earnings for the third quarter of 2013, reported on Nov 5, matched Zacks Consensus Estimates. Calgon Carbon swung to profit in the quarter. It saw higher sales despite an unfavorable currency exchange impact. The company expects fourth-quarter sales to be lower sequentially.

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. The company’s price increase actions should also support sales and profitability.

However, 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.

Moreover, we 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. Higher costs associated with corporate initiatives and cost improvement programs are also expected to impact margins in the final quarter of 2013.

Other Stocks to Consider

Other companies in the pollution control industry worth considering are Fuel-Tech, Inc. (FTEK - Snapshot Report), Perma-Fix Environmental Services Inc. (PESI - Snapshot Report) and Sharps Compliance Corp. (SMED - Snapshot Report). While Fuel-Tech retains a Zacks Rank #1 (Strong Buy), both Perma-Fix and Sharps Compliance hold a Zacks Rank #2 (Buy).

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