Kimball Incinerator Ramp-Up And PFAS Solution Will Open Future Markets

Key Takeaways

• Strategic pricing and increased incineration utilization in Environmental Services aim to offset challenges and drive revenue growth and margin expansion.
  
• Expansion into new markets and a strong balance sheet support long-term revenue growth and future earnings through acquisitions and internal investments.
  
• Economic uncertainties and external challenges could hinder revenue and earnings growth despite the company's efforts to adjust pricing and reduce costs.

Catalysts

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

• The successful ramp-up of the new incineration kiln at Kimball, which is expected to process 28,000 tons this year and shows potential for future growth in 2026, is likely to enhance revenue and improve margins due to higher incineration utilization.
  
• Clean Harbors' strategic pricing initiatives and increased demand in the Environmental Services (ES) segment, including higher incineration utilization and pricing, aim to offset Industrial Services challenges and drive revenue growth and margin expansion.
  
• The company's aggressive shift towards charge-for-oil pricing in the SKSS segment, coupled with cost-cutting measures, is expected to stabilize this segment's profitability despite lower base oil prices.
  
• The continued expansion into new markets, such as the PFAS total solution offering and the ongoing governmental support for PFAS remediation, is anticipated to drive long-term revenue growth.
  
• The company's strong balance sheet with a high cash balance and low leverage, alongside active M&A review and strategic internal investment, positions Clean Harbors to capitalize on synergies and grow earnings through future acquisitions and internal growth initiatives.

Clean Harbors Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Clean Harbors's revenue will grow by 5.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.6% today to 8.7% in 3 years time.
• Analysts expect earnings to reach $606.4 million (and earnings per share of $11.93) by about May 2028, up from $391.1 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $677.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.5x on those 2028 earnings, down from 30.4x today. This future PE is lower than the current PE for the US Commercial Services industry at 27.9x.
• Analysts expect the number of shares outstanding to decline by 0.66% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.94%, as per the Simply Wall St company report.

Clean Harbors Future Earnings Per Share Growth

Risks

• The company's Industrial Services revenue was down 10% year-over-year, with challenges due to refinery customers delaying spending and deferring maintenance, which could negatively impact revenue.
  
• Base oil pricing continues to face pressure, and despite higher volumes and cost-cutting measures, this may present ongoing challenges to the profitability of the SKSS segment, affecting net margins and earnings.
  
• The anticipated recovery in industrial services may be muted, and while the company remains optimistic, further economic uncertainty could hinder revenue growth in this segment.
  
• The business faces potential cost increases due to tariffs and inflationary pressures, which could impact net margins. Although the company is adjusting pricing and reducing costs, further cost elevation could affect profitability.
  
• Despite significant company investment, external factors such as slower than expected ramp-up of new capacity at the Kimball incinerator or cyclical downturns in customer sectors could feasibly impact earnings growth.

Valuation

• The analysts have a consensus price target of $252.512 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 $212.15.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $7.0 billion, earnings will come to $606.4 million, and it would be trading on a PE ratio of 26.5x, assuming you use a discount rate of 6.9%.
• Given the current share price of $222.1, the analyst price target of $252.51 is 12.0% higher.
• 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.