Please ensure Javascript is enabled for purposes of website accessibility

Can This Waste Manager Help Clean Up Your Portfolio?

By Howard Smith - Mar 6, 2020 at 10:29AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Clean Harbors is effectively a contractor for sustainability initiatives.

ESG investors concentrate on companies that perform well in environmental, social, and governance categories, and renewable energy providers are one example of environmentally minded companies. Clean Harbors Inc. (CLH 0.10%), North America's leading provider of environmental, energy, and industrial services, should also fit into that category. Investors looking for an ESG-friendly company can look at Clean Harbors' results for what is going right with the business, along with how the business is doing right for the environment. 

Green barrels with recycling symbols on them.

Image source: Getty Images.

A growing, founder-led business

CEO and Chairman Alan S. McKim started Clean Harbors in 1980. Through investments and acquisitions, the company has become the leading service provider of its kind, and the largest hazardous waste disposal company in North America. In what could be a rather stagnant business that does nothing more than follow GDP growth, the company has delivered increasing revenue for a compound annual growth rate (CAGR) of 5.35% over the most recent three years. This compares to an average of 2.3% for annual GDP, according to the U.S. Bureau of Economic Analysis.

Metric 2019  2018 2017  2016 
Revenue (billion) $3.4 $3.3 $2.94 $2.76

Data source: Clean Harbors Financial Filings.

Clean Harbors' two reporting segments are environmental services and Safety-Kleen. Environmental services includes technical services, industrial and field services, and oil, gas, and lodging services that specifically serve the energy industry.

Safety-Kleen is a business the company acquired in October 2012 for $1.25 billion. The service provides closed-loop environmental services, including used oil collection, recycling, rerefining, and parts washing for small-quantity users. It currently accounts for annual revenue of approximately $1.2 billion, or about 35% of total sales.  

More sustainable solutions

The majority of current revenue comes from environmental services, a segment largely driven by GDP and industrial output. Over the past several years, its top four industries served -- manufacturing, chemical, refineries, and automotive --have made up almost half of the business. 

Among all its customers, the company reports that the demand for more sustainability is growing, and it has been responding in several ways. It has rerefined over 3.5 billion gallons of used oil -- a process that involves removing impurities from used oil to allow it to be reused. It recycles solvents in over 1 million parts washers annually, and the destruction of ozone-damaging chlorofluorocarbons (CFCs) in its incinerators helps reduce the release of carbon dioxide. It also provides emergency response for chemical spills and other potentially damaging events. 

The business strategy

The company expects growth to continue to come from expanding its services and geographic coverage. It can leverage growth by cross-selling between its two segments. The plan for 2020 is also to grow through higher pricing, its mix of waste streams, and increased project volumes. Separately, it will launch an e-commerce platform, and intends to pursue emerging growth opportunities that will arise from PFAS contamination remediation services. 

The midpoint for 2020 guidance sees adjusted free cash flow increasing by about 8% compared to last year. Historically, the stock price has followed the trend of increasing free cash flow.

CLH Chart

CLH data by YCharts

Additionally, the company has not included any benefits in its assumptions related to new marine emission regulations called IMO 2020. Beginning in 2020, the International Maritime Organization (IMO) has ruled that marine sector emissions in international waters be slashed, by using lower sulfur fuels. Clean Harbors believes it will ultimately benefit from these new regulations in its rerefining business. 

Clean Harbors' environmental solutions align well with customers shifting their focus toward sustainability. Investors looking for an investment in the ESG framework would be wise to give Clean Harbors another look.

 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Clean Harbors, Inc. Stock Quote
Clean Harbors, Inc.
CLH
$87.67 (0.10%) $0.09

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
317%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.