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Clean Harbors (CLH) Rides on Buyouts, Operational Efficiency

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Shares of Clean Harbors, Inc. (CLH - Free Report) have gained 23.4% on a year-to-date basis, outperforming the 4.9% increase recorded by the industry it belongs to. The company is benefitting from the Veolia acquisition, pricing initiatives and solid growth across each of its reporting segments.

 

 

The company recently reported mixed results, with earnings surpassing the Zacks Consensus Estimate but revenues lagging the same. Adjusted earnings per share of 59 cents beat the consensus mark by 18 cents and came ahead of the year-ago figure by 38 cents. Total revenues of $843.2 million missed the consensus estimate by $8.4 million but increased 11.6% year over year.

The company has an impressive earnings surprise history, having outpaced estimates in three of the last four quarters. It delivered average four-quarter positive earnings surprise of 14.6%.

What’s Driving Clean Harbors?

Acquisitions: A Key Growth Catalyst

Clean Harbors continues to grow with the help of multiple acquisitions in both new and existing markets. So far this year, the company has completed two acquisitions a privately-owned company in August and the U.S. Industrial Cleaning Business of Veolia Environmental Services North America LLC (the "Veolia Business") in February.

While the privately-owned company is expected to expand Clean Harbors’ environmental services and waste oil capabilities, Veolia boosts the company’s U.S. Industrial Services business. Veolia assets contributed $44.9 million of direct revenues in third-quarter 2018.

Thus, acquisitions have been helping Clean Harbors expand its business across multiple lines of services and contributing to its top-line growth, thereby acting as key growth catalyst.

Operational Efficiency Leading to Profitability

Clean Harbors’ focus on improving its efficiency and lowering operating costs through advanced technology, process efficiencies and stringent cost management are appreciable. By setting-up additional service locations near treatment, storage and disposal facilities (TSDFs), it expects to minimize capital expenditure and increase its market share. This, in turn, is likely to drive additional waste into the company’s existing facilities, thereby, increasing capacity utilization and enhancing operating profit.

Notably, the company witnessed adjusted EBITDA growth of 14.9% year over year in third-quarter 2018 on the back of higher-margin waste streams.  Adjusted EBITDA margin increased 50 basis points year over year to 16.8%.

Shareholder-Friendly Moves

We are impressed by Clean Harbors’ endeavors in rewarding its shareholders in the form of share repurchases. In third-quarter 2018, the company repurchased nearly 104,000 shares for $7.1 million. It repurchased shares worth $48.9 million in 2017, $22.2 million in 2016 and $73.3 million in 2015. Such moves indicate the company’s commitment to create value for shareholders and underline its confidence in its businesses.

Zacks Rank & Other Stocks to Consider

Currently, Clean Harbors sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

A few other top-ranked stocks in the broader Business Services sector are Paychex, Inc (PAYX - Free Report) , WEX Inc (WEX - Free Report) and Automatic Data Processing Inc. (ADP - Free Report) , each carrying a Zacks Rank #2 (Buy). Long-term expected EPS (three to five years) growth rates for Paychex, WEX and Automatic Data Processing are 8.5%, 15%, and 12.5%, respectively.

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