2 Waste Disposal Stocks to Buy, 1 to Sell

The waste disposal industry is poised for considerable growth amid technological progress and increasing awareness and government support. Given the industry tailwinds, fundamentally strong waste disposal stocks Clean Harbors (CLH) and Stericycle (SRCL) might be good investments to consider. However, fundamentally weak Li-Cycle Holdings (LICY) doesn’t appear well-placed to deliver decent returns on investment. Read on…

Global tailwinds aiding the waste disposal industry bode well for fundamentally sound Clean Harbors, Inc. (CLH) and Stericycle, Inc. (SRCL). In contrast, the ongoing slump in demand for electronics, appliances, and automobiles could hinder the prospects of fundamentally weak Li-Cycle Holdings Corp. (LICY).

Owing to rapid urbanization and the ever-increasing density of urban population centers, smart and sustainable waste management via IoT, sensors, and data analytics has become one of the priorities at the front and center of urban and industrial planning.

With increasing public awareness of the impact of human activity on the environment, political encouragement has also been enabling the expansion of the waste management industry. For instance, the Resource Conservation and Recovery Act (RCRA) allows the EPA to control hazardous waste throughout its lifecycle, involving the generation, transportation, treatment, storage, and disposal of hazardous waste. RCRA has also set a framework for the management of non-hazardous solid wastes.

Consequently, the global waste management market is expected to grow at a 5.4% CAGR to reach $2 trillion by 2030. Moreover, with electronics and digital devices becoming ubiquitous, the e-waste management market is projected to grow at a 12.1% CAGR until 2032.

In the above context, let’s take a closer look at the featured stocks.

Stocks to Buy:

Clean Harbors, Inc. (CLH)

CLH provides industrial and environmental services across North America. The company operates through two segments: Environmental Services; and Safety-Kleen Sustainable Solutions (SKSS).

CLH posted strong results for the fiscal first quarter that ended March 31, 2023, led by its Environmental Services segment. The company’s revenue increased 12% year-over-year to $1.31 billion, while its adjusted EBITDA was $215.14 million, up 19.4% year-over-year. Consequently, the company’s adjusted net income and EPS increased 63.1% and 63.9% from the prior-year quarter to $74.11 million and $1.36, respectively.

Ahead of its earnings release on August 2, analysts expect CLH’s revenue to increase 4.4% year-over-year to $1.42 billion, while its EPS is expected to come in at $2.09. The company has topped consensus EPS estimates in each of the trailing four quarters. Both revenue and EPS are expected to keep increasing over the next two fiscals.

The stock has gained 7.7% over the past month and 36.3% over the past six months to close the last trading session at $170.08. Its forward EV/EBITDA ratio of 10.84 is 2.6% below the industry average of 11.12.

CLH’s overall POWR Rating of B equates to Buy in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

CLH also has a grade of B for Value. It tops the list of 15 stocks in the B-rated Waste Disposal industry.

Beyond what we stated above, additional ratings for CLH’s Growth, Momentum, Stability, Sentiment, and Quality are available here.

Stericycle, Inc. (SRCL)

As a business-to-business service company, SRCL protects people and brands, promotes health and well-being, and safeguards the environment through Regulated Waste and Compliance Services and Secure Information Destruction Services. The company’s segments include North America and International.

For the fiscal first quarter that ended March 31, 2023, SRCL’s revenue increased 3% year-over-year to $684.30 million. During the same period, the company’s gross profit increased 6.7% year-over-year to $261 million, while its adjusted EBITDA increased 29% year-over-year to $111.3 million.

Consequently, SRCL’s adjusted net income attributable to common shareholders increased 56.4% and 53.1% year-over-year to $45.5 million and $0.49 per share, respectively.

SRCL’s revenue and EPS for the fiscal second quarter are expected to increase by 0.8% and 6.3% year-over-year to come in at $685.29 and $0.51, respectively. Both metrics are expected to keep increasing over the next two fiscals.

With a 2-year beta of 0.91, the stock has gained 1.7% over the past year to close the last trading session at $45.61.

SRCL’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. It has an A grade for Growth and a B in Stability and Sentiment.

SRCL is ranked #5 of 15 stocks in the B-rated Waste Disposal industry. Click here for additional ratings for Value, Momentum, and Quality of SRCL.

Stock to Sell:

Li-Cycle Holdings Corp. (LICY)

LICY is a lithium-ion battery recycling company based in Canada. The company provides solutions for the secure destruction of materials containing intellectual property (IP)-sensitive design information, such as research and development (R&D) batteries and battery materials that are tailored to the specific needs of each of its customers.

On July 11. LICY and EVE Energy, one of the world’s largest lithium-ion battery cell manufacturers, signed a memorandum of understanding to collaborate on safe, sustainable, and efficient recycling solutions.

On May 9, LICY and Glencore plc (GLNCY) signed a Letter of Intent to jointly study the feasibility of and develop a Hub facility in Portovesme, Italy.

However, with crude oil prices depressed due to macroeconomic headwinds and Elon Musk and other executives at Tesla, Inc. (TSLA) updating during the earnings call that vehicle production would slow during the third quarter due to shutdowns for factory improvements, it could be quite a while before the benefits of the aforementioned collaborations are reflected in the business and stock performance of LICY.

During the fiscal first quarter that ended March 31, 2023, LICY’s total revenue declined 55% year-over-year to $3.6 million. This was due to an unfavorable non-cash fair market value metal pricing impact of $4.1 million, driven by a decline in cobalt and nickel prices versus a benefit of $4.4 million in the prior year.

During the same period, the company’s loss from operations and adjusted EBITDA loss also widened 85.3% and 80.5% year-over-year to $39.1 million and $35.2 million, respectively. Consequently, LICY’s net loss widened almost fourfold to $39.4, or $0.22 per share.

For the fiscal second quarter that ended June 30, 2023, LICY’s revenue is expected to decline 9.2% year-over-year to $7.85 million, while its loss per share is expected to widen by 14.3% year-over-year to $0.16. Moreover, the company has an unenviable earnings history of missing Street estimates in each of the previous four quarters.

With a 5-year beta of 1.22, the stock has slumped 17.7% over the past year to close the last trading session at $5.73.

LICY’s dismal outlook is also reflected in its overall POWR Rating of D, which translates to a Sell in our proprietary rating system. It also has D grades for Stability and Sentiment.

Unsurprisingly, LICY is ranked last among its industry peers. Click here to see additional POWR Ratings for Growth, Value, Quality, and Momentum for LICY.

What To Do Next?

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CLH shares were trading at $170.20 per share on Friday afternoon, up $0.12 (+0.07%). Year-to-date, CLH has gained 49.14%, versus a 19.57% rise in the benchmark S&P 500 index during the same period.

About the Author: Santanu Roy

Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.


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