UltraLong (100.00)

Better Know A Stock - Part 10

August 21, 2009 – Comments (10) | RELATED TICKERS: CLH

The inspiration here is all Stephen Colbert's.... he has his series of "Better know a district" so I figured why the heck not... Better Know a Stock, companies that are never followed or too small to be heard of. So here goes that 9000 part series.... =)

Clean Harbors Inc. (NYSE: CLH)

What a waste this company is....so much so that they are the prime candidate to lead growth in the waste management sector. Clean Harbors provides multiple storage, disposal and clean up services in the waste management sector. Sometimes these services involve traditional pick-up, removal and transportation of waste, other times it involves on-site clean-up. Remember Hurricane Katrina a few years back? Who do you think the prime benefactor of the clean-up effort was in Post-Katrina times? Clean Harbors!

The greatest thing about Clean Harbors is the diversity of customers by which they serve. Although 99% of their business can be traced from the United States (predominantly) and Canada, no one customer makes up over 2% of their revenue stream and no one segment makes up over 1/4 of their business. Sometimes its the government, sometimes its local businesses and refineries, and sometimes its the common public that needs their services.

With this level of revenue diversification comes both good and bad qualities. Clearly Clean Harbors doesn't have to worry about losing a huge customer and taking an unexpected blow to their revenue stream. Conversely, in tough economic times as we have now, they'll notice a contraction in spending on nearly all of their accounts. Not surprisingly we saw significant revenue weakness in their most recent 10-Q but continued and strong profitability.

Looking forward Clean Harbors has lofty expectations to match as it is definitely pricing in continued profits. CLH is looking at turning a profit of nearly $3 per share in 2010 on a sizable jump in revenue of 32%. Now I should mention this revenue jump does come with an asterik. Clean Harbors just closed on an acquisition of Eveready Inc. which services the oil industry predominantly in Canada. Cheat the numbers however you want, at 19 times earnings and historically growing revenues at over 20% per year for the past decade this has room to run.

How about management? It's a veritable who's who of trash! Actually I'm kidding, but it is a strong, well managed company. Seven of the highest ranking eleven members have been with the company for anywhere from 10 to 29 years with the CEO being the company's founder. Company's which can lure management to stick around are usually successful and I feel that's one major key to CLH's continued success.

What could hold Clean Harbors back? Well, other than depressed spending from their customers as I mentioned above, Clean Harbors also agreed to take on the entire amount of Eveready's debt. CLH recently priced 300 million dollars in 7 year notes to help cover the costs of these debts and frankly to acquire Eveready. CLH has a history of paying down debt quickly, but also to the detriment of their profits on occasion. Keep in mind as well that CLH is often seen as a hurricane season play and will definitely ebb and flow with some seasonality.

Keeping my expectations realistic given that Clean Harbors has seen its revenues go up nearly four-fold since 2001 and witnessed a 700% appreciation in its stock price during that time period, I could see CLH trade as high as $82.50-$85 per share over the next 18 months if it can execute its merger without too much trouble. Many of CLH's projects have not been cancelled by this economic downturn, but merely delayed. Don't be too surprised to see orders begin to pick up within the next 9-15 months and don't be shocked if CLH bucks the trend of the other trash in this sector.

I do not currently own shares in CLH.

Those numbers don't lie, and that ain't no bull!

UltraLong