Leading provider of environmental and industrial services in North America, Clean Harbors, Inc. (CLH) reported an impressive operational performance in the fourth quarter and full-year 2022. Furthermore, the company guided a solid fiscal 2023, driven by the sustained demand for its product and service offerings and numerous strategic acquisitions.
Despite the challenging macro environment, shares of CLH have gained 12.5% over the past six months and 20.9% over the past year to close the last trading session at $134.07. Given its solid fundamentals and promising growth prospects, adding this quality stock to your portfolio could be wise for substantial gains.
Throughout this piece, I will discuss various reasons why I am bullish on this stock.
CLH concluded the record fiscal year 2022 with solid fourth-quarter results, led by its Environmental Services (ES) segment. The company’s full-year revenues grew 36% year-over-year to $5.17 billion from a combination of pricing and volume. By leveraging this growth and controlling its costs, the company delivered an adjusted EBITDA growth of 51% year-over-year.
In addition, the company reported adjusted net income for 2022 of $389.50 million and $7.15 per share, compared with $199.60 million or $3.64 per share for 2021, respectively.
Alan S. McKim, CLH’s Chairman, President, and CEO, said, “Favorable market dynamics continued to drive considerable demand for our disposal and recycling assets, while our broad range of service offerings also performed well in the quarter.”
Furthermore, the company provided an impressive business outlook for the fiscal year 2023. McKim said, “Within ES, our record backlog of waste and deferred revenue grew during the quarter, which positions us well for this year. Based on the diversity of our customer base, we expect healthy demand for our network of disposal and recycling assets to continue in 2023.”
For the first quarter of 2023, CLH expects adjusted EBITDA to grow nearly 20% from the previous year. For the full-year 2023, the company expects adjusted EBITDA between $1.01 billion and $1.05 billion. This range is based on anticipated net income in the $355-$391 million range. Also, its adjusted free cash flow is expected to be in the $305-$345 million range.
Recently, CLH unveiled its long-term growth strategy, “Vision 2027,” during its 2023 Investor Day in Chicago.
The company’s five-year financial targets include an organic growth-only model in which it is expected to generate a 2027 adjusted EBITDA of approximately $1.40 billion and an adjusted free cash flow of $600 million.
According to a model combining organic growth and acquisitions, CLH is forecasted to generate a 2027 adjusted EBITDA of nearly $2 billion and an adjusted FCF of $800 million.
Here is what could shape CLH’s performance in the upcoming months:
Solid Financials
For the fourth quarter that ended December 31, 2022, CLHs revenues increased 14.2% year-over-year to $1.28 billion. The company’s income from operations grew 55% year-over-year to $127.40 million. Its adjusted EBITDA came in at $224.24 million, an increase of 28.7% year-over-year.
Furthermore, the company’s adjusted net income and EPS were $78.54 million and $1.44, up 61.7% and 61.8% year-over-year, respectively. Its adjusted free cash flow increased 94.6% from the year-ago value to $171.82 million.
Favorable Analyst Estimates
Analysts expect CLH’s revenue to increase 7.6% year-over-year to $1.26 billion in the first quarter that ended March 2023. The company’s EPS for the same period is expected to grow 40.1% year-over-year to $1.16. Moreover, the company surpassed the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.
Furthermore, the consensus revenue and EPS estimate of $5.56 billion and $7.70 for the next fiscal year (ending December 2024) indicate an improvement of 3.8% and 12.2% year-over-year, respectively.
High Profitability
CLH’s trailing-12-month gross profit margin of 31.41% is 7.1% higher than the industry average of 29.33%. Likewise, the stock’s trailing-12-month EBITDA margin of 19.01% is 43.1% higher than the industry average of 13.29%. Also, its trailing-12-month net income margin of 7.97% is 22.7% higher than the industry average of 6.49%.
Additionally, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 23.97%, 8.89%, and 6.72% compare to the industry averages of 13.83%, 6.96%, and 5.18%, respectively.
Discounted Valuation
In terms of trailing-12-month P/E, CLH’s 17.73x is 6.9% lower than the industry average of 19.04x. The stock’s trailing-12-month EV/EBITDA of 9.65x is 17.7% lower than the industry average of 11.61x. In addition, its trailing-12-month EV/EBIT multiple of 14.79 is 6.4% lower than the industry average of 15.81.
POWR Ratings Show Promise
It’s no surprise that CLH has an overall rating of A, equating to a Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CLH has an A grade for Quality, consistent with its high profitability compared to its peers. Also, it has a B grade for Growth and Sentiment, in sync with its robust financial growth and optimistic analyst estimates.
In addition, the stock’s lower-than-industry valuation justifies its B grade for Value.
CLH topped the 15-stock Waste Disposal industry. The industry is rated B. Click here to access CLH’s additional POWR ratings for Stability and Momentum.
View all the top stocks in the Waste Disposal industry here.
Bottom Line
Environmental and industrial services provider CLH’s revenue has grown at a 14.8% CAGR over the past three years. The company’s EBITDA and net income have increased at CAGRs of 23.3% and 61.5% over the same period, while its EPS has grown at a 63.2% CAGR. Furthermore, CLH is poised for solid long-term growth, driven by introducing new products and services and numerous strategic investments.
The stock is trading above its 50-day and 200-day moving averages of $133.83 and $116.93, respectively, indicating an uptrend. Given its robust financials, favorable analyst estimates, high profitability, and low valuation, it could be wise to buy this high-quality stock for significant gains.
How Does Clean Harbors, Inc. (CLH) Stack up Against Its Peers?
CLH has an overall rating of A, equating to a Strong Buy rating, investors could also check out its peers within the Waste Disposal industry, such as Republic Services Inc. (RSG), Stericycle, Inc. (SRCL), and Concrete Pumping Holdings, Inc. (BBCP), which are all rated B (Buy).
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CLH shares were trading at $134.87 per share on Thursday afternoon, up $0.80 (+0.60%). Year-to-date, CLH has gained 18.18%, versus a 7.32% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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