New Incinerator Launch And PFAS Opportunities Will Drive Future Growth

Key Takeaways

• Expansion efforts, including a new incinerator and strategic acquisitions, are poised to boost revenue and enhance margins through increased capacity and synergies.
  
• Positioning in PFAS remediation and market expansion into sectors like semiconductors aims to leverage regulatory and demand trends for sustainable growth.
  
• Challenges in SKSS, operational costs of new facilities, integration risks, and regulatory compliance may collectively compress margins and affect revenue and earnings.

Catalysts

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

• The launch and ramp-up of the new Kimball, Nebraska incinerator are expected to increase capacity by 12% and contribute $8 million to $12 million in EBITDA for 2025, with further contributions expected as the facility optimizes over the next 3 to 4 years. This expansion is likely to boost revenue and earnings growth.
  
• The ongoing demand for PFAS remediation and destruction could potentially create a multibillion-dollar market. Clean Harbors is positioning itself to capitalize on this opportunity, which is expected to be supported by regulatory developments, thereby positively impacting future revenue streams.
  
• The integration and contributions from recent acquisitions, such as HEPACO and Noble Oil, are driving organic growth, providing opportunities for synergies and increased volumes in the Environmental Services segment, which is expected to enhance future revenue and EBITDA margins.
  
• Plans to expand presence in rapidly growing markets like Phoenix are aimed at tapping into increasing demand from the semiconductor industry and other sectors, which should help boost revenue and improve net margins through strategic geographic expansion.
  
• Strategic cost-cutting initiatives and pricing adjustments within the SKSS segment are designed to counteract market challenges, maintain margins, and improve profitability, expecting a recovery in Industrial Services that supports future earnings growth.

Clean Harbors Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Clean Harbors's revenue will grow by 5.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.8% today to 8.3% in 3 years time.
• Analysts expect earnings to reach $580.8 million (and earnings per share of $10.94) by about March 2028, up from $402.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.2x on those 2028 earnings, up from 26.4x today. This future PE is greater than the current PE for the US Commercial Services industry at 29.8x.
• Analysts expect the number of shares outstanding to decline by 0.15% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.39%, as per the Simply Wall St company report.

Clean Harbors Future Earnings Per Share Growth

Risks

• Clean Harbors' SKSS segment is experiencing challenges due to a soft demand and lower pricing for base oil and lubricants, which could negatively impact revenue and earnings.
  
• The start-up of the Kimball, Nebraska incinerator involves ramp-up costs and operational challenges, which could initially compress margins and affect earnings in the short term.
  
• The ongoing pricing pressures and volatility in the used motor oil collection market may lead to higher collection costs, impacting net margins in SKSS.
  
• There are potential execution risks with the integration of acquisitions like HEPACO and Noble Oil, which, if not managed well, could result in higher SG&A expenses and dilute net margins.
  
• Regulatory changes, particularly related to air quality standards (MACT standards), could impose significant compliance costs, impacting net margins if Clean Harbors needs to make substantial investments in existing facilities.

Valuation

• The analysts have a consensus price target of $267.548 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 $240.0.
  
• 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 $580.8 million, and it would be trading on a PE ratio of 30.2x, assuming you use a discount rate of 7.4%.
  
• Given the current share price of $197.07, the analyst price target of $267.55 is 26.3% 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.