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Why Covanta Holding Jumped 16% Today

By Howard Smith – Updated Oct 30, 2020 at 1:53PM

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The pandemic has been a drag on its waste and energy operations, but its third-quarter results were apparently just what investors have been waiting for.

What happened

Shares of waste and energy solutions company Covanta (CVA) spiked by as much as 18% early Friday, and remained up by 16.3% as of 1:50 p.m. EDT. The company reported its third-quarter earnings results Thursday evening, and indicated that its operations are returning to near pre-pandemic levels. 

However, the company's shares are still down more than 40% year to date, even after this jump. Impacts from the pandemic hit its commercial and industrial waste volumes, but the company said that business segment is recovering. 

So what

The world's largest waste-to-energy provider, Covanta uses non-hazardous waste as fuel to power electric generators, keeping it out of landfills, and reducing landfills' methane emissions. After reporting net losses in the first and second quarters, the company bounced back to profitability in the third. 

crane picking up waste to put in incinerator

Image source: Getty Images.

Covanta reported a 6% year-over-year increase in revenue, and net income of $5 million. It also was free cash flow positive, giving investors hope that the company will be able to maintain its dividend

Now what

Though it reduced its dividend amid the decline in business activity and uncertainty earlier in the pandemic, Covanta's payout currently yields 7.5%. It will need positive -- and increasing -- free cash flow if it's going to continue delivering that dividend.  

The company, with a market capitalization of $1.1 billion, has net debt of over $2.5 billion. Thursday's earnings results gave investors more confidence about the state of its business, and hope that the dividend payments will continue. 

Howard Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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