The Zacks Pollution Control industry is poised to gain from solid demand for air pollution control products due to rising greenhouse gas emissions and health-related risks associated with them. Stringent regulations and emission standards enacted by countries globally should continue to drive demand for industry participants. 

However, the growing adoption of renewable sources of energy with a rising preference for alternative fuels has marred the outlook of the industry. Donaldson Company, Inc. (DCI Quick QuoteDCI - Free Report) , Atmus Filtration Technologies Inc. (ATMU Quick QuoteATMU - Free Report) , Energy Recovery, Inc. (ERII Quick QuoteERII - Free Report) and Fuel Tech, Inc. (FTEK Quick QuoteFTEK - Free Report) are likely to capitalize on these opportunities.

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 the 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 and 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.

Major Trends Shaping the Future of the Pollution Control Industry

Strong Demand for Air Pollution Control: Rapid urbanization and the consequent rise in greenhouse gas emissions from the industrial sector have been driving demand for air quality control systems. Increasing public awareness of the health-related risks associated with air pollution is fueling market growth. Also, the expansion of infrastructure-related projects in developing countries is boosting the demand for pollution abatement equipment and technologies.

Stringent Government Regulations: Strict emission standards and related laws implemented by countries across the globe to tackle the depletion of the ozone layer and the ecosystem should continue to augment the demand for pollution-control equipment. Europe has some of the strictest pollution control laws in place. Solid demand for medical, pharmaceutical and hazardous waste management services is boosting the prospects of some industry participants. Also, increased usage of Artificial Intelligence and the Internet of Things in industrial processes has been enabling several industrial companies to monitor and identify the source of air pollution in real-time, thus driving the demand for pollution abatement technologies.

Emergence of Alternative Sources of Energy: The growing preference for renewable energy sources for power generation to reduce dependency on coal in the United States and other developed countries across the world is restraining the demand for industrial emission-abatement products and technologies. Several factors, including supportive government policies related to renewable energy, higher renewable investments, a reduction in the overall costs of generating renewable electricity and the rapid adoption of electric vehicles, have made the prospects of the industry players gloomy.

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 #65. This rank places it in the top 27% of 243 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 outperform the bottom 50% by a factor of more than two to one.

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 current valuation first.

Industry Underperforms Sector & S&P 500

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

Over this period, the industry has remained unchanged compared with the broader sector’s and the S&P 500 Index’s increase of 0.6% and 19%, 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 21.15X compared with the S&P 500’s 23.72X. It is above the sector’s P/E (F12M) ratio of 20.45X.

In the past five years, the industry has traded as high as 29.71X, as low as 17.52X and at the median of 22.35X, as the chart below shows:

Price-to-Earnings Ratio vs SP500

Price-to-Earnings Ratio vs Sector

4 Pollution Control Stocks to Keep a Tab on

Atmus Filtration: Headquartered in Nashville, TN, the company is a designer and producer of filtration and media solutions. Its leading position in the industrial filtration market, effective pricing actions and sound capital allocation strategy are expected to support its growth. Its global footprint, comprehensive offering of premium products and technology leadership also bode well. ATMU currently carries a Zacks Rank #2 (Buy).

Atmus Filtration’s earnings surpassed the Zacks Consensus Estimate in each of the preceding four quarters, the average beat being 10.7%. Shares of the company gained 13% in the past year. You can see  the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: ATMU

Donaldson: Headquartered in Bloomington, MN, Donaldson is engaged in the manufacturing and selling filtration systems and replacement parts across the world. Solid momentum in the aftermarket business, driven by positive market trends and the impact of expanded market share, is supporting the company’s Mobile Solutions segment. Growth in demand for new dust collection equipment is boosting the Industrial Solutions segment’s performance.

Donaldson’s earnings beat the Zacks Consensus Estimate in three of the preceding four quarters while missing the mark in one, the average surprise being 1%. The Zacks Rank #3 (Hold) stock has gained 12.7% in the past year.

Price and Consensus: DCI

Fuel Tech: Based in Warrenville, IL, FTEK develops technology for air pollution control and provides process optimization, water treatment and advanced engineering services. Increased operation dispatch at legacy accounts is aiding its FUEL CHEM segment. The Zacks Rank #3 company’s business development activities, with an increased focus on global emission protocols across a variety of fuel sources, should also drive its growth in the quarters ahead.

The Zacks Consensus Estimate for this company’s 2025 revenues is pegged at $7.5 million, indicating an increase of 41.5% from the year-ago quarter’s figure. The stock has surged 80.6% in the past year.

Price and Consensus: FTEK

Energy Recovery: Based in San Leandro, CA, the company is engaged in manufacturing and designing energy efficiency technology solutions utilized in the water desalination industry. Energy Recovery is poised to benefit from strength in its original equipment manufacturer business, driven by higher shipments of products. New product introductions and a strong pipeline of projects also bode well for it.

The Zacks Consensus Estimate for this Zacks Rank #3 company’s 2025 revenues is pegged at $83.1 million, indicating an increase of 24% from the year-ago quarter’s figure. Although shares of Energy Recovery lost 22.5% in the past year, they rose 18.3% in the past six months.

Price and Consensus: ERII