As hazardous waste swells with energy boom, funds bet on Clean Harbors

NEW YORK, April 1 Wed Apr 2, 2014 12:33am IST

Stocks

   
Rajalakshmi (C), 28, smiles after winning the Miss Wheelchair India beauty pageant in Mumbai November 26, 2014. REUTERS/Danish Siddiqui

Miss Wheelchair India

Seven women from across India participated in the country's second wheelchair beauty pageant, which aims to open doors for the wheelchair-bound in modelling, film and television, according to organisers  Slideshow 

NEW YORK, April 1 (Reuters) - Even as its share price has slumped 8 percent in the year to date, hazardous waste manager Clean Harbors, Inc. has cleaned up in terms of fund-manager interest as more of them bet on one of the down sides of the energy boom.

Manufacturers large and small have opened U.S. plants to take advantage of low energy costs as cheap natural gas and shale oil transform the United States into one of the world's largest energy producers, in turn swelling the amount of battery acids and other chemicals left over from the production process.

The refinery businesses along the Gulf Coast, including those of Valero Energy Corp, Marathon Petroleum Corp and Exxon Mobil Corp, have thrived as a result of higher oil output. Meanwhile, demand has also risen for companies to treat the byproducts, ranging from wastewater to sludge.

That's helped to lure a swarm of fund managers to Norwell, Massachusetts-based Clean Harbors, which controls about 70 percent of commercial incineration capacity in North America and about one-fifth of the landfills that can accept hazardous material, according to analyst estimates, putting it ahead of competitors like Veolia Environmental Services SA.

Indeed, 43 mutual funds added a position in Clean Harbors over the last quarter, sending its total ownership up 15 percent to 460 funds, according to fund tracker Morningstar.

That level of ownership, which includes positions held by well-known funds such as the $5.8 billion Baron Small Cap and $8.9 billion Fidelity Mid-Cap Stock fund , is considered high for a company with a market value of just $3.3 billion.

In comparison, retailer Rite Aid Corp, one of the largest small-cap companies in the benchmark Russell 2000 index with a $6.1-billion market cap, is owned by 469 funds.

The spike in fund ownership comes even as Clean Harbors faces a sagging stock price and analyst skepticism.

The company missed analyst expectations in its most recent quarter and lowered its guidance for the year, a fallout from its attempt to merge the commodities-sensitive businesses it has acquired over the past few years with its core line of hazardous waste disposal and clean up.

Its shares are down 8.2 percent since Jan. 1, and 5.2 percent over the last 12 months.

At about $53, the company's share price is just 4 percent below the median analyst target price of $55.50, according to Thomson Reuters data. Four out of 14 analysts who cover the stock rate it a 'strong buy,' down from six analysts who had the same rating 60 days ago.

VALUE FUNDS KEEN

To be sure, the lagging share price is one reason value-oriented funds are buying now, fund managers and analysts said.

"We've been buying it more as it's been getting cheaper and the story became confusing to people," said Bryant VanCronkhite, portfolio manager of the $859 million Wells Fargo Advantage Special Mid-Cap Value fund.

The company missed earnings estimates largely because of the downturns in its oil-recycling business, which makes up a fifth of revenues, VanCronkhite said.

Those losses didn't harm the competitive advantages that Clean Harbors enjoys, including the high barriers to entry in its field and expertise in fields ranging from landfills to cleaning up oil spills, he said.

Investors will likely need to see two or more quarters of cost-cutting and growth before they are convinced that the company has figured out how to streamline its disparate business lines, said Scott Levine, an analyst at Imperial Capital, who has a neutral rating on the stock and recently lowered his target price to $52.50 from $65.

"Management has indicated that all options are on the table, which we see as a good sign" that it may sell or contract its exposure to more commodity-dependent business lines, Levine said.

The company also said it would buy back up to $150 million in shares, and has targeted $75 million in cost-cuts that it did not factor into its earnings forecasts, suggesting it is being conservative in its outlook, said Adam Thalhimer, an analyst at BB&T Capital Markets.

Thalhimer maintained his 'buy' rating despite the company's earnings coming in 8 cents below his estimate of 52 cents a share, and lowered his target price to $55 from $66.

"There's a longer-term opportunity with Gulf Coast industrial production. The end markets this company operates in are good, so the only question is whether it can take advantage and put up better results," he said. (Editing by Richard Valdmanis and Bernadette Baum)

SAARC Summit

REUTERS SHOWCASE

E-Commerce Boom

E-Commerce Boom

Online grocers come up trumps in India's e-commerce boom   Full Article 

Reuters Poll

Reuters Poll

GDP growth to slow to 5.1 pct, but no rate cut yet  Full Article 

Oil Prices Fall

Oil Prices Fall

Oil at four-year low as OPEC production cut looks unlikely  Full Article 

Google in Europe

Google in Europe

Insight - Behind Google's Europe woes, American accents  Full Article 

Vodafone Tax Dispute

Vodafone Tax Dispute

India advised against challenging Vodafone tax ruling - source  Full Article 

India-focused Funds

India-focused Funds

India-focused hedge funds up over 40 pct YTD - HFR  Full Article 

Trade Deal

Trade Deal

WTO postpones trade deal by a day after last-minute objection.  Full Article 

RBI Rate Hopes

RBI Rate Hopes

Markets pricing in rate cut, despite wary RBI  Full Article 

Land Disputes

Land Disputes

Disputes over land for industry on the rise in India, angering locals - charities  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage