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Covanta Holding Gains on Systematic Capital Expenditures

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We recently issued an updated research report on Covanta Holding Corporation . The company delivered fourth-quarter 2018 earnings of 4 cents per share, which missed the Zacks Consensus Estimate of earnings of 7 cents by 42.86%.

Long-term agreement with City of Long Beach, systematic capital expenditure as well as organic and inorganic growth strategies are tailwinds for Covanta Holding.

However, higher operating expenses, regulatory risk and rising interest rates are headwinds for the company.

 

What’s Driving the Stock?

During 2018, Covanta Holding commenced a fleet optimization program to improve operating profits and cash flows. Also, the initiative enables the company to reduce risk profile and focus on resources for the core business. In September 2018, the company amended an agreement with the City of Long Beach for the continued operation and maintenance of the Southeast Resource Recovery Facility (“SERRF”). Per the terms, the City of Long Beach will invest nearly $9 million and Covanta Holding will spend an additional $5 million, which will facilitate the processing of higher-value waste. The agreement will provide for the operation of the Energy-from-Waste facility (EfW) until Jun 30, 2024.

Over the past five years, the company has been investing substantially to purchase property, plant and equipment. On Sep 18, 2018, the company acquired the Palm Beach Resource Recovery Corporation ("PBRRC") for $46 million. In addition to acquisition investment of $50 million in 2018, the company invested $23 million in organic growth projects.

However, instability or deterioration in the capital market may adversely impact the company’s access to capital market, which in turn, could affect the business, financial condition and the company’s ability to execute its strategy to grow business. Currently, the company’s debt-to-capital ratio stands at 83.47%, much higher than the industry average of 35.11% and the Zacks S&P 500 composites’ figure of 41.54%.

Zacks Rank & Stocks to Consider

Covanta Holding currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the same sector are Enphase Energy, Inc (ENPH - Free Report) , SunCoke Energy, Inc (SXC - Free Report) and Sunworks, Inc .

While Sunworks sports a Zacks Rank #1 (Strong Buy), Enphase Energy and SunCoke Energy carry a Zacks Rank #2 (Buy). You can see the complete .list of today’s Zacks #1 Rank stocks here.

Enphase Energy came up with an average positive earnings surprise of 33.34% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has moved up 36.6% to 41 cents in the past 60 days.

SunCoke Energy pulled off an average positive earnings surprise of 285.83% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has rallied 59% to 70 cents in the past 60 days.

Sunworks delivered an average positive earnings surprise of 7.50% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has surged 100% to 6 cents in the past 60 days.

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