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3 Top Stocks From the Prospering Pollution Control Industry

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The Zacks Pollution Control industry’s growth is supported by strong demand for air pollution abatement products, thanks to rising greenhouse gas emissions and growing awareness among the masses regarding the health risks of air pollution. Strict laws and emission standards implemented by countries worldwide should continue to foster demand in the industry despite some softness from the adoption of renewable sources of energy for power generation and other activities.

Companies like Tetra Tech (TTEK - Free Report) , Energy Recovery (ERII - Free Report) and Fuel Tech (FTEK - Free Report) are well-placed to capitalize on the buoyancy in the industry.

About the Industry

The Zacks Pollution Control industry comprises companies engaged in providing innovative filtration systems, replacement parts, solutions for managing medical wastes, energy recovery devices and other products. These products are primarily used in commercial, automotive repair, industrial, home healthcare, retail, construction, pharmaceutical and hospitality end markets. A few industry participants offer solutions to deal with industrial waste and commercial chemical products as well as technologies to tackle air pollution. One of the companies also delivers services related to infrastructure, water, resource management, energy, etc., to government and commercial clients. These companies are enhancing investments in developing innovative technologies, improving customer and employee experience and enhancing supply-chain modernization programs.

3 Trends Shaping the Future of the Pollution Control Industry

Strong Demand for Air Pollution Control: Rapid urbanization and the resultant increase in greenhouse gas emissions from the industrial sector promotes demand for air quality control systems. Growing awareness among the masses to mitigate the health hazards of air pollution is a key growth driver of the pollution control market. Amid rising environmental pollution, governments worldwide have set emission standards and implemented laws and regulations to curb the same. This should continue to boost demand for pollution abatement equipment and technologies.

Stringent Government Regulations: Strict emission standards and laws implemented by countries across the globe to tackle the destruction of the ecosystem and ozone depletion should foster demand for pollution-control equipment. Europe has some of the strictest pollution control laws in place. This should drive demand for high-quality pollution control solutions in the region. The U.S. government's heightened focus on climate change is expected to create business opportunities for industry players.

Emergence of Alternative Sources of Energy: Amid government pressure to reduce emissions, renewable sources of energy have taken over fossil fuels for power generation. Corporations have increasingly been focusing on sustainability initiatives to move ahead in their path to net-zero emissions. Automakers are rapidly transitioning to electric vehicles as part of their sustainability goals. Although beneficial for environmental protection, these actions are a setback to the industry’s growth. Supply-chain constraints and high costs of raw materials, labor and freight are other headwinds plaguing the industry. Pricing actions are providing some relief from inflationary pressure.

Zacks Industry Rank Indicates Solid Prospects

The Zacks Pollution Control industry, housed within the broader Zacks Industrial Products sector, currently carries a Zacks Industry Rank #59. This rank places it in the top 24% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bullish 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 top 50% of the Zacks-ranked industries is a result of the positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are keeping more faith in this group's earnings growth potential. The industry’s earnings estimates for 2023 have increased 2.6% since the end of June 2022.

Given the upbeat near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it is worth looking at the industry’s shareholder returns and its current valuation first.

Industry Outperforms Sector & S&P 500

Over the past year, the Zacks Pollution Control industry has outperformed both the Zacks S&P 500 composite index and the broader Industrial Products sector.

Over this period, the industry has appreciated 12.1%, compared with the broader sector and the S&P 500 Index’s increase of 9.1% and 7%, respectively.

One-Year Price Performance



 

Industry's Current Valuation

Based on the forward P/E (F12M), a commonly used multiple for valuing pollution control stocks, the industry is currently trading at 22.09X compared with the S&P 500’s 18.53X. It is also above the sector’s P/E (F12M) ratio of 15.36X.

Over the past five years, the industry has traded as high as 30.94X, as low as 16.08X and at the median of 21.84X, as the chart below shows:

Price-to-Earnings Ratio

Price-to-Earnings Ratio

 

3 Pollution Control Stocks to Buy

Tetra Tech: Strength in the Commercial/International Services Group owing to growth in renewable energy programs, environmental work all across the United States and high-performance buildings augur well for Tetra Tech. Successive acquisitions to expand product lines and market presence are fueling the company’s growth. In January, this Zacks Rank #1 (Strong Buy) company acquired RPS Group, Reston and Amyx, enhancing its consultancy in water, environment and sustainable infrastructure and expanding its use of advanced data analytics, cybersecurity and agile software development solutions for its government and commercial customers. You can see the complete list of today’s Zacks #1 Rank stocks here.

Headquartered in Pasadena, CA, Tetra Tech provides consulting, construction management, engineering, program management and technical services. The Zacks Consensus Estimate for the company’s fiscal 2023 earnings has been revised upward by 2.2% in the past 60 days. The stock has gained 14.9% in a year.

Price and Consensus: TTEK



 

Fuel Tech: The U.S. Environmental Protection Agency’s March 2023 ruling to reduce emissions of nitrogen oxides from power plants and certain industrial facilities in 23 states should drive growth of Fuel Tech’s Air Pollution Control business segment. Steady progress toward commercialization supports growth of the company’s Dissolved Gas Infusion segment. FTEK sports a Zacks Rank #1.

Fuel Tech develops technology for air pollution control, and provides process optimization, water treatment and advanced engineering services. The Zacks Consensus Estimate for FTEK’s 2023 earnings has been revised upward by 28.6% in the past 60 days. Shares of the company have increased 14.5% in a year.

Price and Consensus: FTEK



 

Energy Recovery: Strong demand for wastewater products is aiding Energy Recovery. Product introductions and a strong pipeline of projects should fuel the company’s growth. ERII carries a Zacks Rank #2 (Buy).

Headquartered in San Leandro, CA, Energy Recovery is a leading global developer and manufacturer of highly-efficient energy recovery devices utilized in the water desalination industry. The Zacks Consensus Estimate for ERII’s 2023 earnings has been revised upward by 9.5% in the past 60 days. The stock has rallied 38.5% in the past year.

Price and Consensus: ERII



See More Zacks Research for These Tickers


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Tetra Tech, Inc. (TTEK) - free report >>

Fuel Tech, Inc. (FTEK) - free report >>

Energy Recovery, Inc. (ERII) - free report >>

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