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Here's Why You Should Retain Clean Harbors (CLH) for Now

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A prudent investment decision involves buying stocks that have solid prospects and selling those that carry risks. At times, it is rational to hold certain stocks that have enough potential but are weighed on by tough market conditions.

One such stock is Clean Harbors, Inc. (CLH - Free Report) , whose earnings are expected to register 30.9% growth for 2021. 

Factors Driving Clean Harbors

Acquisitions have been helping Clean Harbors expand its business across multiple lines of services and contribute to the top line, thereby acting as a key growth catalyst. During the first nine months of 2019, the company acquired certain assets of a privately-owned business for $10.4 million (to boost its Safety-Kleen segment's core service offerings) and another for $14.9 million (to expand its environmental services and hazardous materials management services). In 2018, the company 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 expands Clean Harbors’ environmental services and waste oil capabilities, Veolia boosts its U.S. Industrial Services business. The company witnessed $154 million of direct revenues from the Veolia business in 2018 and $14.5 million of revenues from its 2017 buyouts.

The company continues to focus on improving its efficiency and lowering operating costs through advanced technology, process efficiencies and stringent cost management. It manages internalization of maintenance costs, procurement and supply-chain improvements, and branch consolidations to improve efficiency. Additionally, it eyes strategic investments in businesses, which are likely to increase productivity. By setting up additional service locations near treatment, storage and disposal facilities (TSDF), the company expects to minimize capital expenditures and increase its market share.

Consistency in rewarding shareholders through share buybacks not only instills investors’ confidence but also positively impacts earnings per share. In 2019, 2018 and 2017, the company had repurchased shares worth $21.4 million, $45.1 million and $48.9 million, respectively. Such moves indicate its commitment to creating value for shareholders.

Risks

Despite the aforementioned positives, the company faces its share of headwinds. Clean Harbors’ balance sheet is highly leveraged. As of Dec 31, 2019, long-term debt was $1.55 billion, while cash and cash equivalents were $371.99 million. High debt might limit the company’s future expansion and worsen its risk profile.

The company’s demand cycle is highly seasonal in nature, as customers' spending patterns are affected by weather and budgetary cycles. The presence of a large number of manufacturing facilities and lodging operations in Canada exposes the company to foreign exchange rate risks.

Zacks Rank & Stocks to Consider

Currently, Clean Harbors carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Business Services sector are CoreLogic , GreenSky and Huron Consulting (HURN - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term expected EPS (three to five years) growth rate for CoreLogic, GreenSky and Huron Consulting is 11%, 12.9% and 13.5%, respectively.

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