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Covanta Holding's Focus on Fleet Optimization Bodes Well

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Covanta Holding Corporation has been investing substantially to purchase property, plant and equipment. Systematic capital expenditure plus focusing on optimizing fleet are tailwinds for the company.

For 2019, the Zacks Consensus Estimate for the company’s earnings surged 150% to 5 cents per share on a year-over-year basis. Additionally, long-term earnings growth of the company is pegged at 15%.

It has an average positive earnings surprise of 37% in the last four quarters.

Year to date, shares of the company have returned 7.4% compared with the industry’s growth of 4.4%.



What’s Driving the Stock?

In the past five years, the company made significant expenditures to address the infrastructural need. The spending was also allocated toward expansion of customer base for various capital projects and acquisitions. These efforts were aimed to curb competition, increase safety and reliability of its Energy-from-Waste projects, provide solutions for solid, recyclable households as well as hazardous wastes, and replacing aging infrastructure to modernize the system.

In the first nine months, the company invested $41 million in different growth projects. The company aims to invest nearly $60 million in growth projects in 2019 to expand existing operation. This includes $10-million investment for strengthening international operation. Covanta Holding expects organic growth and adjusted EBITDA excluding commodities in the range of $420-$445 million for 2019 and expects free cash flow in the band of $120-$145 million.

In March 2019, the company started operations at the East 91st Street Marine Transfer Station in Manhattan. The new facility is ultimately expected to deliver 170,000 tons annually for processing at the Delaware Valley and Niagara sites under a 20-year contract. Through the new Manhattan facility, the company will process nearly 33% of all the residential waste collected by New York City.

However, higher plant operating expenses, stringent laws and regulations in the United States and rising debt levels are headwinds for the company.

Zacks Rank

The stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

Some better-ranked stocks from the same sector are Bloom Energy Corporation (BE - Free Report) , SolarEdge Technologies, Inc (SEDG - Free Report) and Enbridge Inc (ENB - Free Report) . All the three stocks hold a Zacks Rank #2 (Buy).

Long-term earnings growth of Bloom Energy, SolarEdge Technologies and Enbridge is pegged at 25%, 22% and 6.4%, respectively.

Bloom Energy, SolarEdge Technologies and SolarEdge Technologies delivered an average positive earnings surprise of 60.12%, 1.05% and 11.31% in the last four quarters, respectively.

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