Increased government regulations and environmental concerns drive the growth in the waste disposal industry. The rising amount of waste generated by businesses and individuals, along with population growth and urbanization, further contribute to the sector’s solid growth potential.
Therefore, in this article, we will look at three fundamentally sound stocks, Republic Services, Inc. (RSG), Clean Harbors, Inc. (CLH), and Heritage-Crystal Clean, Inc (HCCI), that seems well-positioned to capitalize on the industry tailwinds.
But before delving into the fundamentals of the featured stocks, let us look at a few factors shaping this industry’s future.
The global waste management market reached $1.30 trillion in 2022. Projections indicate that this market is expected to grow at a 5.4% CAGR from 2023 to 2030, reaching a value of $1.96 trillion by the end of 2030.
The waste management market encompasses various types of waste, including municipal, hazardous, electronic, and industrial. Among these, industrial waste represents the largest market share in terms of revenue.
In 2022, the industrial waste segment dominated the waste disposal market, representing a share of over 85.9%. The significant growth in industrial waste generation can be attributed to rapid urbanization and industrialization. According to projections, by 2050, approximately seven billion people will reside in urban areas, indicating a substantial increase in urban waste generation in the coming years.
Further, Environmental, Social, and Governance (ESG) factors have gained prominence and play a crucial role in investment decisions. Waste disposal companies prioritizing sustainable waste management practices, recycling initiatives, and reducing environmental impact can attract investors focused on ESG considerations.
Keeping these factors in mind, let us now evaluate the fundamentals of the featured stocks in detail:
Republic Services, Inc. (RSG)
RSG offers environmental services in the United States. It is involved in the collection and processing of recyclable, solid waste, and industrial waste materials; transportation and disposal of non-hazardous and hazardous waste streams; and other environmental solutions.
On June 5, RSG acquired GFL Environmental’s operations in Colorado and New Mexico. This acquisition encompasses a range of vertically integrated assets, including recycling facilities, collection services, and disposal operations in four key Colorado markets (Denver, Colorado Springs, Durango, and Cañon City) and the Bloomfield market in New Mexico.
This transaction reflects the company’s dedication to Colorado and New Mexico communities, underscoring its commitment to serving these regions.
On March 27, RSG made a notable expansion in its organics recycling operations in California with the acquisition of North State Bioenergy, an anaerobic digestion facility located north of Sacramento.
This acquisition is significant as it aligns with California’s climate strategy to divert food and yard waste from landfills. The acquired facility will serve as crucial infrastructure, enabling RSG’s customers to comply with the law and achieve their sustainability objectives.
For the fiscal first quarter, which ended March 31, 2023, RSG’s revenue increased 20.6% year-over-year to $3.58 billion, while its operating income rose 14.9% from the year-ago value to $644.10 million.
The company’s adjusted net income and EPS amounted to $393.70 million and $1.24, up 9.1% and 8.8% from the prior-year quarter, respectively. Also, its adjusted EBITDA grew 15.1% from the year-ago value to $1.04 billion.
The consensus revenue estimate of $3.73 billion for the second quarter (ended June 30, 2023) represents a 9.2% increase year-over-year. The consensus EPS estimate of $1.32 for the same period reflects a marginal improvement year-over-year. Moreover, the company surpassed the EPS and revenue estimates in each of the trailing four quarters, which is impressive.
Also, its revenue and EBIT have grown at CAGRs of 10.8% and 13.3% over the past three years, respectively, while its net income and EBITDA have improved at 11.9% and 11.8% CAGRs over the same period, respectively.
Over the past six months, RSG’s shares have gained 19.8% to close the last trading session at $149.60.
RSG’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Stability, Sentiment, and Quality. In the 15-stock B-rated Waste Disposal industry, it is ranked #5. Click here to see RSG’s ratings for Growth, Value, and Momentum.
Clean Harbors, Inc. (CLH)
CLH provides environmental and industrial services in the United States and internationally. The company operates through two segments: Environmental Services and Safety-Kleen Sustainability Solutions.
CLH’s revenue for the first quarter (ended March 31, 2023) increased 11.8% year-over-year to $1.31 billion. Its income from operations grew 38.9% from the year-ago value to $120.96 million.
The company’s net income and EPS improved 59.8% and 60.2% from the prior-year quarter to $72.40 million and $1.33, respectively. In addition, its adjusted EBITDA came in at $215.14 million, up 19.4% year-over-year.
Street expects CLH’s revenue for the second quarter (ended June 30, 2023) to increase 4.7% year-over-year to $1.42 billion. Its EPS is expected to be $2.09 in the same period and improve by 30% per annum over the next five years. Additionally, the company has an excellent earnings surprise history, surpassing the consensus EPS estimates in each of its trailing four quarters.
Over the past three years, CLH’s revenue and EBIT have grown CAGRs of 14.9% and 38.6%, respectively. Likewise, its net income and EPS have improved at 59.4% and 61.1% CAGRs over the same period, respectively.
CLH’s shares have gained 93.2% over the year and 44.9% year-to-date to close the last trading session at $165.38.
CLH’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has a B grade for Value, Sentiment, and Quality. Within the same B-rated industry, it is ranked first. Click here to see the other ratings of CLH for Growth, Momentum, and Stability.
Heritage-Crystal Clean, Inc (HCCI)
HCCI provides parts cleaning, hazardous and non-hazardous waste, and used oil collection services to small and mid-sized customers in North America’s industrial and vehicle maintenance sectors. It operates through two segments: Environmental Services; and Oil Business.
On January 31, HCCI announced a new collaboration with Allonnia, Revive Environmental, and EPOC Enviro to launch a groundbreaking closed-loop PFAS remediation solution called 4never™. This partnership aims to offer innovative and effective remediation strategies for managing PFAS in waste disposal and industrial settings.
Commenting on this, President & CEO at HCCI said, “Our joint vision begins with protecting the Earth’s resources. Providing a solution which addresses a problem as pervasive as PFAS is a powerful execution of this vision. The 4never™ solution offers landfill operators and manufacturers a cost-effective and compliant approach to managing PFAS-contaminated leachate and wastewaters.”
In the fiscal first quarter that ended March 31, 2023, HCCI’s total revenue increased 38.8% year-over-year to $193.48 million, while its operating income improved 36.9% from the year-ago value to $24.02 million.
The company’s net income amounted to $16.59 million and $0.70 per share, representing increases of 28.8% and 29.6% from the prior-year quarter, respectively. Also, its adjusted EBITDA rose 46.6% from the year-ago value to $37.45 million.
Analysts expect HCCI’s revenue for the second quarter (ended June 30, 2023) to increase 24.1% year-over-year to $194.42 million, while its EPS is expected to be $0.54 in the same period. In addition, Its EPS is expected to increase by 15% per annum in the next five years. Moreover, the company topped the EPS and revenue estimates in each of the trailing four quarters.
HCCI’s revenue and EBIT have grown at CAGRs of 18.8% and 45.4% over the past three years, respectively. Likewise, its net income and EPS have improved at 76.2% and 75.1% CAGRs over the same period, respectively.
The stock has gained 52.9% over the past year to close the last trading session at $40.97.
It’s no surprise that HCCI has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B grade for Value and Sentiment. Out of 15 stocks in the same industry, it is ranked #2.
In addition to the POWR Ratings we’ve stated above, we also have HCCI’s ratings for Growth, Momentum, Stability, and Quality. Get all HCCI ratings here.
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RSG shares were trading at $149.90 per share on Friday afternoon, up $0.30 (+0.20%). Year-to-date, RSG has gained 17.02%, versus a 18.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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