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Clean Harbors : A leader in pollutant recycling
Founded in 1980 and based in Norwell, Massachusetts, Clean Harbors is the largest provider of hazardous waste disposal services in North America.
A North American business focused on two specialties
Clean Harbors operates in two segments: Environmental Services (around 80% of sales) and Safety-Kleen Sustainability Solutions (around 20%). The first segment encompasses services such as the clean-up and remediation of hazardous waste, including solvents, chemicals, used oils and other toxic materials, essential in the petrochemical, pharmaceutical and other high-risk industries. It also includes emergency response to chemical spills, contamination or industrial accidents.
Clean Harbors also specializes in the treatment of contaminated water through incineration, landfill and filtration processes, as well as the decontamination of soils affected by hydrocarbons, heavy metals and other harmful substances. It uses methods such as bioremediation, solidification and stabilization to rehabilitate land. The company also offers environmental auditing and risk management services.
The second segment involves the collection, processing and refining of used motor oils, which are then transformed into raw materials for the production and sale of lubricants and other by-products.
Geographically, Clean Harbors operates across North America via a network of trucks, generating 87% of its revenues in the United States and 13% in Canada.
The company's strategy is based on targeted acquisitions, with over 75 deals completed since its creation. These transactions have enabled the company to diversify its services and strengthen its market position. The company also benefits from a number of barriers to entry, including a portfolio of specialized and highly regulated assets, such as incinerators and landfills adapted to pollutants, as well as technological know-how and complex regulatory processes.
Financial performance
The Group's financial performance follows a linear and stable growth trajectory, with annual sales growth of 5%. Profitability indicators are also solid, with an EBITDA margin approaching 20%, a net margin of 7% and an estimated Free Cash Flow (FCF) per share of 7.2 in 2024. Clean Harbors has consistently exceeded market expectations, posting double-digit surprise rates, such as in the second quarter of 2024, when it outperformed earnings per share forecasts by 11%.
Rather than paying dividends, the company focuses on enhancing shareholder value through share buybacks, with $228 million worth of shares repurchased in 2023. On the balance sheet, it aims to reduce debt, with a net debt to FCF ratio target of 2.8x in 2026, compared with 6x in 2023, indicating a strategy of gradual deleveraging.
Outlook
Clean Harbors' growth prospects are underpinned by a number of underlying trends, such as market expansion, the relocation of production units to the United States and increasing waste volumes. On the other hand, the "indispensable" nature of its business for high-risk industries is a solid lever, and government initiatives could also play a positive role in the short term. This dynamic is reflected in analysts' forecasts and recommendations, with 85% of them advising buying or accumulating the stock.
There are, however, risks to consider. Clean Harbors' business is cyclical and requires substantial capital expenditure, representing 40% of its EBITDA. In addition, the company is closely monitored by regulatory authorities, due to the environmental risks associated with the substances it processes. Finally, revenues from the sale of recycled lubricants and fuels are closely linked to fluctuations in the oil market.
Stock market indicators
- Market capitalization: $13.1 billion
- Share price performance over 5 years: +215%.
- Over the past year: +41%
- PER: x31.6
Republic Services: A major player in non-hazardous waste recycling
Republic Services is positioned as a generalist player in the recycling sector.
An integrated waste collection group
Founded in 1998 and based in Arizona, Republic Services offers a comprehensive range of services encompassing waste collection, transfer, recycling and management. It supplies bins and containers to a diverse customer base, ranging from American households to local businesses and industrial companies, with whom it establishes long-term contracts for large-scale waste collection.
With an extensive network of over 200 landfills in the United States, Republic Services processes recovered materials such as paper, cardboard, plastic, glass and metals, which it then resells as recycled raw materials.
400% over 10 years
Republic Services' growth is the result of a strategy of targeted acquisitions, with 12 strategic operations to its credit, and recurring revenues from long-term contracts. It boasts robust profitability indicators, with EBITDA margins close to 30%, net margins of 12% and free cash flow (FCF) margins of 14%. Sales have grown at a steady pace of 5% a year over the past decade.
The company's share price has attracted a great deal of market interest, as evidenced by the doubling of its market capitalization in four years and a performance of 400% over ten years. Optimistic medium-term growth forecasts and underlying market opportunities suggest that this upward trend could continue.
However, it should be noted that Republic Services is capital-intensive, as is its sector, with over 10% of total sales devoted to capital expenditure, which is also accompanied by aggressive leverage of x6 Free Cash Flow in 2023. The ratio should nevertheless reduce to x4 by 2026, reflecting prudent debt management.
Stock market indicators
- Market capitalization: $64.6 billion
- Share price performance over 5 years: +130
- Over the past year: +41%
- PER: x30.1
