BUSINESS
Clean Harbors, Inc. provides environmental and industrial services in North America. The company operates through two segments, Environmental Services and Safety-Kleen Sustainability Solutions. The Environmental Services segment collects, transports, treats, and disposes hazardous and non-hazardous waste, such as resource recovery, physical treatment, fuel blending, incineration, landfill disposal, wastewater treatment, lab chemicals disposal, and explosives management services; and CleanPack services, including collection, identification, categorization, specialized packaging, transportation, and disposal of laboratory chemicals and household hazardous waste. This segment also provides industrial maintenance and specialty industrial services, and utilizes specialty equipment and resources that performs field services.
INVESTMENT RATING
With future capital returns forecasted to be above the cost of capital, CLH is expected to continue to be an important Value Builder.
Clean Harbors has a current Value Trend Rating of C (Neutral).
The Value Trend Rating reflects consistent signals from PTR’s two proprietary measures of a stock’s attractiveness. Clean Harbors has a neutral Appreciation Score of 42 and a slightly positive Power Rating of 66, with the Neutral Value Trend Rating the result.
Clean Harbors’ stock is selling below targeted value. The current stock price of $181.49 compares to targeted value 12 months forward of $221.
This neutral appreciation potential results in an appreciation score of 42 (58% of the universe has greater appreciation potential.)
Clean Harbors has a Power Rating of 66. (This slightly positive Power Rating indicates that CLH’s chances of achieving favorable investment performance over the near to intermediate term are only average.)
Factors contributing to this slightly positive Power Rating include: recent price action has been favorable; and the Hazardous Waste Management comparison group is currently in a modestly favorable position. An offsetting factor is earnings estimate behavior for CLH has been slightly negative recently.
INVESTMENT PROFILE
CLH’s financial strength is average. Financial strength rating is 44.
Relative to the S&P 500 Composite, Clean Harbors Inc has neutral Growth/Value characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that CLH is higher risk. High historical growth is a positive for CLH. Relative weaknesses include: low historical profitability, low financial strength, and high earnings variability. CLH’s valuation is moderate: low dividend yield, moderate P/E ratio, and moderate price/book ratio. CLH has unusually low market capitalization.
CURRENT SIGNALS
Clean Harbors’ current operations are strong. Return on equity is rising, reflecting: improving asset utilization; widening pretax margins; rising tax keep rate; and rising leverage.
Clean Harbors’ current technical position is very strong. The stock price is in a 20.3 month up move. The stock has appreciated 124.3% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
Significant negative changes in investment behavior have recently occurred for Clean Harbors Inc (NYSE: CLH): the stock fell on very heavy volume.
In light of this new information we are reviewing our current Overall Rating of C. This review will be completed in the next several days.
Clean Harbors Inc (NYSE: CLH) has reported earnings for its fourth fiscal quarter (ending December 31) of $1.82 versus $1.53 for the same period a year ago. E.P.S. were $6.99 for the latest four quarters through December 31 versus $7.59 for the same period a year ago.
Clean Harbors Inc (NYSE: CLH) stock closed at $181.49 on 2/21/24 after a decline of -3.2%. Moreover, exceptionally high trading volume at 242% of normal accompanied the decline. The stock has been strong relative to the market over the last nine months and has risen 0.9% during the last week.
CASH FLOW
In 2022, Clean Harbors generated an increase in cash of +$20.3 million (+4%). Sources of cash were very slightly larger than uses. Cash generated from 2022 EBITDA totaled +$992.3 million. Non-operating sources contributed +$18.5 million (+2% of EBITDA). Cash taxes consumed -$90.7 million (-9% of EBITDA). Re-investment in the business amounted to -$693.8 million (-70% of EBITDA). On a net basis, debt investors pulled out -$202.6 million (-20% of EBITDA) while equity investors withdrew -$3.3 million (-0% of EBITDA).
Clean Harbors’ Non-operating Income, %EBITDA has exhibited a minor overall uptrend over the period. This improvement was accompanied by stability for the Clean Harbors Peer Group. In most years, Clean Harbors was in the top quartile. Currently, Clean Harbors is upper quartile at +2% of EBITDA (+$18.5 million).
Clean Harbors’ Cash Taxes, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Clean Harbors Peer Group. (Since 2020 Cash Taxes, %EBITDA has experienced a very sharp decline.) In most years, Clean Harbors was in the top quartile and third quartile. Currently, Clean Harbors is at the lower quartile at -9% of EBITDA (-$90.7 million).
Clean Harbors’ Business Re-investment, %EBITDA has suffered a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Clean Harbors Peer Group. In most years, Clean Harbors was in the second quartile and third quartile. Currently, Clean Harbors is lower quartile at -70% of EBITDA (-$693.8 million).
Clean Harbors’ Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by stability for the Clean Harbors Peer Group. In most years, Clean Harbors was in the second quartile and top quartile. Currently, Clean Harbors is slightly above median at -20% of EBITDA (-$202.6 million).
Clean Harbors’ Equity Investors, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by stability for the Clean Harbors Peer Group. (Since 2020 Equity Investors, %EBITDA has accelerated.) In most years, Clean Harbors was in the third quartile and top quartile. Currently, Clean Harbors is slightly above median at -0% of EBITDA (-$3.3 million).
Clean Harbors’ Change in Cash, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by stability for the Clean Harbors Peer Group. In most years, Clean Harbors was in the top quartile and second quartile. Currently, Clean Harbors is at median at +2% of EBITDA (+$20.3 million).
Clean Harbors’ Cash, %Revenue has exhibited a very small overall uptrend over the period. This improvement was accompanied by stability for the Clean Harbors Peer Group. (Since 2020 Cash, %Revenue has experienced a sharp decline.) In most years, Clean Harbors was in the top quartile. Currently, Clean Harbors is at the upper quartile at +11%.
PROFITABILITY
Clean Harbors’ return on equity has improved very significantly since 2013. The current level of 16.6% is 2.56X the low for the period and is -22.7% from the high.
The key to the story for CLH is a very strong positive trend in pretax operating return significantly augmented by a very strong positive trend in non-operating factors.
The productivity of Clean Harbors’ assets declined over the full period 2013-2023: asset turnover has experienced a downtrend.
More than offsetting this trend, however, pretax margin enjoyed a very strong overall uptrend that accelerated very sharply from the 2016 level.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
Clean Harbors’ return on equity is at the upper quartile (16.6%) for the four quarters ended September, 2023.
Operating performance (pretax return on assets) is at the upper quartile (7.7%) reflecting asset turnover that is at median (0.86X) and pretax margin at the upper quartile (9.0%).
Tax “keep” rate (income tax management) is at median (75.3%) resulting in after tax return on assets that is at the upper quartile.
Financial leverage (leverage) is at the upper quartile (2.86X).
GROWTH RATES
There are no significant differences between Clean Harbors’ longer term growth and growth in recent years.
Clean Harbors’ historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth.
Annual revenue growth has been 5.5% per year. (More recently it has been 21.2%.)
Total asset growth has been 6.9% per year.
Annual E.P.S. growth has been 21.7% per year. (More recently it has been 47.8%.)
Equity growth has been 5.9% per year.
Clean Harbors’ consensus growth rate forecast (average of Wall Street analysts) is 9.0% — in line with the average of the historical growth measures.
Relative to the Clean Harbors Peer Group, Clean Harbors’ historical growth measures are generally second quartile. E.P.S. growth (21.7%) has been at the upper quartile. Total asset growth (6.9%) has been above median. Revenue growth (5.5%) has been above median. Equity growth (5.9%) has been above median.
In agreement with this pattern, consensus growth forecast (9.0%) is at the lower quartile.
PRICE HISTORY
Over the full time period, Clean Harbors’ stock price performance has been variable and in line with the market. Between April, 2013 and February, 2024, Clean Harbors’ stock price rose +219%; relative to the market, this was a +2% gain. Significant price moves during the period: 1) June, 2022 – February, 2024: +107%; and 2) March, 2020 – October, 2021: +119%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 28.9% is upper quartile relative to the S&P 500 Composite.
In addition to being upper quartile relative to S&P 500 Composite, current annual total return performance through January, 2024 of 28.9% is above median relative to Clean Harbors Inc Peer Group.
Current 5-year total return performance of 23.2% is upper quartile relative to the S&P 500 Composite.
Through January, 2024, with upper quartile current 5-year total return of 23.2% relative to S&P 500 Composite, Clean Harbors’ total return performance is at the upper quartile relative to Clean Harbors Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, CLH’s overall valuation is normal. The highest factor, the price/equity ratio, is above median. Ratio of enterprise value/assets is above median. Price/earnings ratio is above median. Ratio of enterprise value/earnings before interest and taxes is slightly above median. The lowest factor, the ratio of enterprise value/revenue, is near the lower quartile.
Relative to Clean Harbors Peer Group, CLH’s overall valuation is quite high. The highest factor, the price/equity ratio, is upper quartile. Ratio of enterprise value/assets is upper quartile. Ratio of enterprise value/revenue is upper quartile. Price/earnings ratio is slightly above median. The lowest factor, the ratio of enterprise value/earnings before interest and taxes, is at median.
Clean Harbors has a major value gap compared to the median valuation. For CLH to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 2.30X to 1.37X. If CLH’s ratio of enterprise value/revenue were to fall to 1.37X, its stock price would be lower by $-92 to $90.
For CLH to fall to lower quartile valuation relative to the Clean Harbors Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 2.30X to 0.99X. If CLH’s ratio of enterprise value/revenue were to fall to 0.99X, its stock price would decline by $-130 from the current level of $181.
VALUE TARGETS
With future capital returns forecasted to be above the cost of capital, CLH is expected to continue to be an important Value Builder.
Clean Harbors’ current Price Target of $216 represents a +19% change from the current price of $181.49.
This neutral appreciation potential results in an appreciation score of 42 (58% of the universe has greater appreciation potential.)
Reinforcing this neutral Appreciation Score of 42, the moderately high Power Rating of 66 contributes to an Value Trend Rating of C.
Clean Harbors’ current Price Target is $216 (+53% from the 2022 Target of $141 and +19% from the 02/21/24 price of $181.49). This dramatic rise in the Target is the result of a +41% increase in the equity base and a +9% increase in the price/equity multiple. The forecasted increase in growth has a large positive impact on the price/equity multiple and the forecasted increase in return on equity has a very slight positive impact as well. Partially offsetting these Drivers, the forecasted increase in cost of equity has a slight negative impact.
PTR’s return on equity forecast is 15.9% — in line with our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2014 and 2022. The current forecast is significantly above the 2017 low of 4%.
PTR’s growth forecast is 22.0% — substantially above our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2014 and 2022. The current forecast is significantly above the 2017 low of 0%.
PTR’s cost of equity forecast is 10.1% — in line with recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2014 and 2022. The current forecast is well above the 2016 low of 3.3%.
At Clean Harbors’ current price of $181.49, investors are placing a positive value of $112 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 18.0% per year, and a return on equity of 15.9% versus a cost of equity of 9.9%.
PTR’s 2024 Price Target of $216 is based on these forecasts and reflects an estimated value of existing assets of $91 and a value of future investments of $125.
Be the first to comment