The global water treatment and waste management leader Veolia Environnement (NASDAQOTH:VEOEY) has given investors quite the roller-coaster ride in the last three years. That's mostly due to its own making. Years ago, management laid out an ambitious long-term strategy to boost margins and operating cash flow, reduce debt, and return to top- and bottom-line growth. While the company has generally executed against the vision, delays and unexpected events have not been met with the benefit of the doubt from Wall Street.

The good news is that a solid end to 2016 and promising start to 2017, which management has labeled a "transition year," has put Wall Street analysts in a good mood again. The better news is that Veolia Environnement expects the rate of progress to accelerate from now through the end of 2019. That makes next year a pretty important year for the business and investors. Let's explore what's ahead for Veolia.

A water treatment facility.

Image source: Getty Images.

The year ahead

It's a good idea to revisit the long-term plan. The company's financial guidance is a bit different than most. Management provides financial outlooks that focus on EBITDA, a suitable metric for gauging the health of operations spread across various tax zones, although other metrics are included in varying detail. 

Metric

2017

2018

2019

Revenue

"Resumption of growth" following transition years prior

Continuation of growth

Continuation of growth

Cost savings

$278 million

$334 million

Full impact of cost savings will be realized

EBITDA

Stable to moderate growth from $3.24 billion

"Resumption of growth"

$3.5 billion to $3.72 billion

Data Source: Veolia Environnement.

The EBITDA target for 2019 was originally intended to occur in 2018, but was delayed for one year due to slower-than-expected growth and contract execution in core markets. Those effects are expected to linger around for longer than originally expected, which is why management identified additional areas that could help to improve operational efficiency. The total cost savings expected to be achieved by the end of 2018 compared to 2016 was increased from $637 million to $850 million as a result. 

So, relative to original expectations set in 2015 and 2016, an additional $200 million in expenses will be cut from operations to achieve the same level of EBITDA one year later. That's not ideal, but it shouldn't be too concerning for long-term investors.

Consider, for example, that Veolia Environnement has increased its dividend (paid once annually) for two consecutive years. That trend seems likely to continue for the foreseeable future, especially given that operating cash flow has increased every year since 2013 -- and has actually exceeded internal targets. The company has previously stated that it will increase the dividend in line with net income. 

VEOEY Total Return Price Chart

VEOEY Total Return Price data by YCharts.

That's not the only trend that should have investors cheering. Veolia Environnement's waste and energy segments are the fasting-growing parts of the business. They comprised 34% and 24% of first-quarter 2017 revenue, respectively, and are witnessing increased demand from global customers seeking long-term contracts.

Most investors and analysts aren't discussing it today, but this trend offers long-term potential for the company. While water treatment and services will continue to be the largest segment for the next several quarters and years, it's reign may end sooner than expected. That's not necessarily a bad thing, either, considering there are many high-margin opportunities in waste management and energy.

What does it mean for investors?

Veolia Environnement is well-positioned to continue executing on its long-term strategy to improve top- and bottom-line growth. While some investors may find that boring, there is the potential for some excitement to be added to the mix. If the rates of growth demonstrated recently in those the waste and energy segments continue through the remainder of 2017 and into 2018, then the company may actually exceed its expected financial targets. Even if that doesn't occur by 2019, it appears likely to help the company grow in the beginning of the next decade.

Maxx Chatsko has no position in any stocks mentioned. The Motley Fool recommends Veolia Environnement (ADR). The Motley Fool has a disclosure policy.