Clean Harbors (NYSE:CLH) shares have taken a bit of a beating recently. Instead of panicking and waiting for imminent disaster, though, I'm going to add more shares of the waste management and environmental clean-up company to the real-money Prosocial Portfolio I'm managing for Fool.com.
Clean Harbors gets stuck in the muck
Although many companies' share prices have been beneficiaries of the market's chaotic movements, Clean Harbors' shares have missed many, many parties recently. The stock's well off its 52-week high of nearly $72 per share. That's fine though, because it gives investors a good entry point for this stock -- or a decent place to increase positions, as I am choosing to do.
Several factors have left Clean Harbors stuck in the muck. For example, there's been some negativity churned up related to Clean Harbors' $1.25 billion acquisition of Safety-Kleen. At one point Standard & Poor's threatened to downgrade Clean Harbors' credit rating due to the deal, but later the ratings agency changed its mind.
Sadly enough, fewer major disasters for four quarters straight led to lackluster financial results compared to other years that featured some big clean-ups for Clean Harbors, such as the BP oil spill in the Gulf of Mexico and Hurricane Katrina.
What's more, Chief Financial Officer Robert Gagnon resigned last week, which, at first blush, never really sounds like particularly good news for a company.
The Safety-Kleen acquisition didn't seem to excite many investors much, but it's a very smart move for the long term. Safety-Kleen re-refines and recycles used oils, so it's another area where Clean Harbors is bringing environmentally sustainable practices to the forefront. It also will allow the company to enter smaller markets.
Frightening Frankenstorm Hurricane Sandy hit just in time for Halloween, and Clean Harbors quickly arrived on the scene, with about 700 employees on the ground providing disaster clean-up services.
One of the parts of my original investment thesis for Clean Harbors was that while none of us likes or enjoys disasters, whether man-made or not, sadly enough, they are going to happen. Given increasing signs that climate change is going to result in more extreme weather, including more destructive Sandy-like super-storms, Clean Harbors is a go-to resource for help after such disasters, and also an expert in hazardous waste removal.
Rivals, risks, and opportunities
Granted, Clean Harbors does have challenges, including rivals in some of the areas it covers. The Safety-Kleen acquisition gets Clean Harbors back to its beginnings in waste management services, where it competes with – you guessed it -- Waste Management (NYSE:WM). (Waste Management is also a two-time Prosocial Portfolio purchase.)
Veolia (NASDAQOTH:VEOEY) and Republic Services (NYSE:RSG) also work in the "what-to-do-with-waste" field, and it's actually a growth industry. Overall, some analysis expects a compound annual growth rate of 3.4% from 2011-2015 and that's in the U.S. solid waste management area alone. That's due to the growing need to remove solid waste from landfills. The companies named above are all considered key participants in that market and could be big beneficiaries. In 2011, disposal of hazardous and non-hazardous waste made up 44% of Clean Harbors' revenues.
Meanwhile, Clean Harbors has other business lines, including services in the energy industry (these represented 19% of total revenues in 2011). This gives the company diversification and the ability to cross-sell some services to customers.
Right now, Clean Harbors looks more expensive than it did when I first purchased it; it now trades at 18 times forward earnings and sports a PEG ratio of 2.03. However, I'd bet analysts haven't been able to get a good grip on the company's growth due to certain lumpy elements of its business, such as disaster relief, nor the coming benefits of the Safety-Kleen acquisition.
Although the CFO resignation may seem dire, the position will actually now be filled by Vice Chairman, President, and Chief Operating Officer James Rutledge, who previously served as CFO from 2005 through 2012. Gagnon was only on board as CFO since August 2012, and while it raises eyebrows, Rutledge's resumption as CFO is hopefully a good sign and not a negative one.
Buying on low tide
It seems to me it's a fortuitous time to add more Clean Harbors shares to the Prosocial Portfolio. Times of weakness are the best times to buy, and in my opinion, Clean Harbors' recent share price weakness has been overdone.