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Clean Harbors (CLH) Up 9.5% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Clean Harbors (CLH - Free Report) . Shares have added about 9.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Clean Harbors due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Clean Harbors Q2 Earnings Top Estimates, '18 View Up

Clean Harbors reported strong second-quarter 2018 results wherein both earnings and revenues surpassed the Zacks Consensus Estimate.

Earnings of 54 cents per share beat the consensus mark by 24 cents and exceeded the year-ago figure of 24 cents. The improvement came on the back of pricing initiatives, improved mix of waste streams and effective spread management.

Total revenues of $849.1 million beat the consensus estimate by $11.9 million and increased 12.8% year over year on strong organic growth and Veolia acquisition. Veolia assets accounted for almost half of the company’s top-line growth in the quarter. 

Revenues by Segment

Environmental Services revenues increased 15.2% year over year to $554.8 million. Growth was driven by strength in Industrial Services lines of business in both the United States and Canada, Veolia acquisition, higher volumes in the company’s disposal network, pricing improvements, organic growth in base business and project work within Field Services business. The segment benefited from improving industrial economy that boosted key industry verticals like chemical and manufacturing. The segment accounted for 65% of total revenues.

Safety-Kleen revenues increased 8.5% year over year to $294.4 million. The growth was buoyed by higher base oil and blended pricing and growth in the company’s branch network. The segment contributed 35% to total revenues.

Profitability Performance

Adjusted EBITDA in the second quarter increased 15.6% year over year to $139.6 million. The upside was driven by solid waste volume, improved pricing and higher revenues. Adjusted EBITDA margin increased 40 basis points (bps) year over year to 16.4%.

Segment-wise, Environmental Services’ adjusted EBITDA was $109.2 million, up 15.1% year over year. Safety-Kleen’s adjusted EBITDA of $73.1 million showed an improvement of 21.2% year over year.

Balance Sheet, Cash Flow, Share Repurchase

Clean Harbors exited the second quarter with cash and cash equivalents of $197.1 million compared with $186.4 million at the end of the prior quarter. Inventories and supplies were $193.5 million, up from $181.4 million in the prior quarter. Long-term debt of $1.62 billion was in line with the prior quarter.

The company generated $77.7 million of cash from operating activities in the quarter. Adjusted free cash flow was $29.7 million. CapEx (net of disposals) came in at $48.1 million.

In the quarter, the company repurchased 0.2 million shares for a total cost of $12.2 million.

2018 Guidance

Clean Harbors raised its 2018 guidance. The company now expects adjusted EBITDA in the range of $460-$490 million compared with the previously guided range of $440-$480 million. Segment-wise, adjusted EBITDA for Environmental Services segment is anticipated to increase in low-teens in 2018. Veolia's U.S. Industrial business is expected to add $10-$13 million in adjusted EBITDA. Safety-Kleen’s adjusted EBITDA is expected to register almost mid-teens growth.

Adjusted free cash flow is expected in the range of $135-$165 million compared with the previously guided range of $125-$155 million. Net cash from operating activities is projected between

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted 8.9% due to these changes.

VGM Scores

Currently, Clean Harbors has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is equally suitable for value, growth, and momentum investors.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Clean Harbors has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.




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