Clean Harbors stock analysis is part of a full Waste Management stocks sector investing analysis alongside a list of 15 waste management stocks, all analyzed.
Clean Harbors, Inc. is a provider of environmental, energy and industrial services, including hazardous waste disposal for companies, including Fortune 500 companies, small waste generators and federal, state, provincial and local governments.
CLH is highly exposed to business activity in the US, consequently a slowdown would be very detrimental and in addition, what you are looking at now from an investing perspective is probably the best the company can deliver as business in the late part of the economic cycle is as good as it gets.
Therefore, a PE ratio of 26 is a bit high for the current environment the company is operating in. 2019 expected free cash flows are $200 million which leads to a lower than 4.5% FCF yield on investment as Clean Harbors’ market capitalization is above $4.5 billion.
Clean Harbors stock price almost doubled during 2019 showing how it was definitely a much better buy 12 months ago when the FCF yield was closer to 10% and PE ratio in the teens.
Going forward anything can happen, but investing is about risk and reward and I simply don’t like the current risk and reward of Clean Harbors stock. If we have a recession, the stock could easily fall to December 2018 levels while the upside is limited given the single digit business yield and single digit growth in a strong economic environment. I would conclude by saying that Clean Harbors stock is exuberantly priced at the moment. The net present value for the stock targeting a 10% business return from the investment gives that Clean Harbors stock is a buy at a price of $41.4.
On top of everything, Clean Harbors’ balance sheet is highly leveraged. Having almost a billion in goodwill, $2 billion in liabilities on $1.2 billion in equity could lead to very tricky situations if interest rates increase or business activity slows down. Thus, the risk of investing in Clean Harbors stock is simply to high.
Of course, the fact that there are risks doesn’t have to mean anything in the short term or if the risks don’t ever materialize. If the management continues to efficiently create value by delivering growth, be it organic or through acquisitions, increases share repurchases and lowers debt, the stock can keep going up.
But, if you speculate on what the management can do and how that compares to other stocks in the market, you are a relative and not an absolute investor. Relative investors look at what the company does and compare it to others out there in the sector or in the general market. Absolute investors focus on what is the business yield of compared to the stock price. Clean Harbors’ stock offers a current FCF yield of 4.5%, alongside relatively high risk and future expected growth in line with the US economy.
I think we can find better.
Sven Carlin Ph.D., the author, is an independent stock market researcher and investor managing the Sven Carlin Stock Market Research Platform.
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