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Clean Harbors Rides on Operational Efficiency Amid Debt Woes

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Waste management companies are at an advantage in situations such as the recent one, wherein proper disposal of used masks, gloves, suits, syringes and other medical equipment is of utmost importance to curb the spread of coronavirus.

One such stock is Clean Harbors, Inc. (CLH - Free Report) , which we believe investors should retain as it carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Operational Efficiency and Buyouts

Clean Harbors’ focus on improving its efficiency and lowering operating costs through advanced technology, process efficiencies and stringent cost management is appreciable. In 2019, the company achieved internalization of maintenance costs, procurement and supply chain improvements and site consolidations to improve efficiency. Additionally, it eyes strategic investment 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. This, in turn, is likely to drive additional waste into the company’s existing facilities, thereby increasing capacity utilization and enhancing overall profitability.

The company continues to make capital investments to enhance its quality and comply with government and local regulations. A diversified customer base ranging from Fortune 500 companies to mid-size and small public and private entities offers stable and recurring sources of revenues.

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. In 2019, Clean Harbors acquired certain assets of a privately-owned business for $10.4 million to boost its Safety-Kleen segment's core service offerings and a privately-owned business for $14.9 million to expand its environmental services and hazardous materials management services.

In 2018, the company made 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 the company’s U.S. Industrial Services business. The company witnessed $154 million of direct revenues from the Veolia Business in 2018.

Debt Woes Stay

Clean Harbors has a debt-laden balance sheet. Total debt at the end of first-quarter 2020 was $1.87 billion, more than $1.85 billion at the end of the prior quarter. Total debt to total capital ratio of 0.61 is higher than the industry’s 0.58 and the previous quarter’s 0.57. An increase in debt to capitalization ratio indicates higher risk of insolvency in challenging times.

Further, the company’s cash and cash equivalent of $494 million at the end of the first quarter was well below this debt level, underscoring that the company doesn’t have enough cash to meet this debt burden. The cash level, however, can meet the short-term debt of $48 million.

Stocks to Consider

Some better-ranked stocks in the broader Zacks Business Services sector are DocuSign (DOCU - Free Report) , SPS Commerce (SPSC - Free Report) and SailPoint Technologies Holdings, Inc. (SAIL - Free Report) . All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term expected earnings per share (three to five years) growth rate for DocuSign, SPS Commerce and SailPoint is 47%, 15% and 15%, respectively.

5 Stocks to Soar Past the Pandemic: In addition to the companies you learned about above, we invite you to learn about 5 cutting-edge stocks that could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of the decade.

See the 5 high-tech stocks now>>