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.
stock investment analysis – leave it to pension and index funds
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
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
Clean Harbors stock
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
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.