Expanding Sustainability Solutions And Strategic M&A Fuel Robust Growth Potential

Key Takeaways

• New incinerator operations and potential regulatory changes can boost service demand, aiding revenue and growth in hazardous waste disposal.
  
• Strategic acquisitions and operational optimizations are set to enhance revenue, efficiencies, and margins, supporting both organic and inorganic growth.
  
• Less favorable pricing, increased inventories, and higher costs from acquisitions and healthcare could pressure margins and negatively impact net earnings.

Catalysts

Provides environmental and industrial services in the United States and internationally.

• The completion of the new state-of-the-art incinerator in Kimball, Nebraska, is expected to begin operations soon, providing increased capacity and potential to serve a growing demand for hazardous waste disposal, which should positively impact revenue and future growth.
  
• The acquisition of HEPACO has already fueled significant top-line growth and is expected to continue contributing to revenue growth, enhancing synergies and economies of scale, thereby potentially improving net margins and earnings.
  
• Initiatives to stabilize the Safety-Kleen Sustainability Solutions (SKSS) segment, including managing oil collection costs and optimizing re-refinery operations, aim to stabilize and grow EBITDA, which could improve net margins and earnings over time.
  
• The incineration capacity increase and potential tighter EPA PFAS regulations may drive further demand for Clean Harbors’ services. Successful navigation of these regulations could unlock new revenue streams in the rapidly expanding PFAS destruction market.
  
• There is a commitment to strategic M&A and capital allocation with a strong acquisition pipeline, expected to drive both organic and inorganic growth in revenue, while also pursuing cost efficiencies and margin improvements.

Clean Harbors Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Clean Harbors's revenue will grow by 7.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.0% today to 8.6% in 3 years time.
• Analysts expect earnings to reach $596.6 million (and earnings per share of $10.69) by about October 2027, up from $392.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.5x on those 2027 earnings, down from 36.2x today. This future PE is greater than the current PE for the US Commercial Services industry at 26.1x.
• Analysts expect the number of shares outstanding to grow by 1.11% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 6.69%, as per the Simply Wall St company report.

Clean Harbors Future Earnings Per Share Growth

Risks

• The company noted a less favorable pricing environment affecting the SKSS segment, which could negatively impact revenues and margins going forward.
  
• Industrial Services experienced a weaker quarter than anticipated due to a less extensive turnaround, which may affect future earnings.
  
• The company experienced increased inventories in SKSS due to softer demand, which could pressure margins until the excess is worked down.
  
• Higher corporate costs from acquisitions and insurance and healthcare expenses could reduce net margins despite cost reduction efforts.
  
• Billing delays during HEPACO integration will impact cash flows, possibly affecting net earnings negatively.

Valuation

• The analysts have a consensus price target of $272.59 for Clean Harbors based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $300.0, and the most bearish reporting a price target of just $250.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $6.9 billion, earnings will come to $596.6 million, and it would be trading on a PE ratio of 30.5x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of $263.39, the analyst's price target of $272.59 is 3.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.