For all the garbage and industrial waste we create, you’d think collecting and packing junk into landfills would be a slam-dunk of a business.
Alas, it’s not that simple. As much waste as there is, there’s no shortage of companies looking to dispose of it. A look at the biggest and best-known waste management stocks reveals a hot-but-volatile growth stock, a dependable dividend-payer, and one stock best suited for the rubbish pile.
Clean Harbors (NYSE:CLH) put waste management companies in the news Monday after shares rose sharply following an upgrade. Analysts at Oppenheimer lifted the stock from perform (hold) to outperform (buy), citing strong demand trends and benefits from its $1.25 billion deal to buy Safety-Kleen, which closed late last year.
The deal for Safety-Kleen — the biggest in Clean Harbors’ history — adds re-refining and recycling of used oil to the company’s portfolio of services, just as the use of oil and gas rigs in North America is picking up. (Fracking and the whole shale gas revolution is a pretty messy business.)
Clean Harbors’ stock is lagging the broader market for the year-to-date and during the past 52 weeks — but over the last month, it has gone almost vertical. Shares have run up 17% since March 1, beating the S&P 500 by about 14 percentage points.
The Safety-Kleen deal makes tremendous strategic sense, and gives Clean Harbors something not seen in the two biggest companies in the industry: outsized sales and earnings growth, at least in the short- and medium-term.
Analysts expect Clean Harbors to post a 42% gain in earnings per share this year on 69% revenue growth. During the next five years, the company is forecast to grow earnings at an average annual clip of more than 12%, while the broader market is forecast to generate a growth rate of just 9%.
Unlike the biggest names in the industry, Clean Harbors doesn’t pay a dividend, so it needs an outsized growth rate to keep the investor base happy. Happily for new investors, there still appears to be value left in the shares despite the recent rally. The forward price-to-earnings ratio of 18 offers a 23% discount to its own five-year average, according to data from Thomson Reuters Stock Reports.
For a sleepier, if steadier, stock, look no farther than Waste Management (NYSE:WM). The biggest U.S. waste company by market cap, WM is a dividend stalwart with a decade-long record of steady, rising payouts. At current share-price levels, the forward yield on the divided comes to a healthy 3.7%.
Even better, this equity-income stock hasn’t been too shabby in terms of price appreciation either — not recently, anyway. It’s up more than 14% for the year-to-date, versus a 9.5% gain for the S&P 500.
However, over the last 52 weeks, the stock has only matched the broader market. And this is where that dividend really comes into play, because there’s not much growth in the forecast. Earnings per share, revenue and the long-term growth rate all dwell in the mid-to-low single-digit percent range.
Cash machine? Check. But Waste Management is hardly a hot growth stock like Clean Harbors.
As for Republic Services (NYSE:RSG), the second biggest name in the business by market cap … well, it has neither the growth nor the income to make it a buy, at least at current levels.
True, shares are beating the S&P 500 by nearly 2 percentage points for the year-to-date, but given the growth prospects, the stock looks fairly valued.
The forward P/E of 15 is in line with its own five-year average, so although it’s by no means pricey, it hardly looks to be a bargain, either.
Meanwhile, earnings per share are forecast to grow just 6% this year. Revenue is expected to expand only 2.5%. And the long-term growth rate stands at 3.7%.
That shallow, sleepy trajectory wouldn’t matter so much if the stock were very cheap or if RSG’s divided were as juicy as that of its bigger competitor. But with a forward yield of 2.8%, Waste Management looks to be the better stock for equity income.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.