Clean Harbors To Gain From Robust Pricing Trends In Environmental Services Business, Analyst Forecasts ~30% ES Margins

Truist Securities analyst Tobey Sommer reiterated a Buy rating on Clean Harbors, Inc. CLH, raising the price target to $200 from $165.

CLH recently reported Q2 results, where revenues increased 3% to $1.40 billion.

In the quarter, the analyst believes the strength in the Environmental Services business has continued to offset the decline in SKSS driven by challenging base oil demand conditions.

Looking ahead, Sommer is encouraged by robust Environmental Services pricing trends, with all ES business lines growing organically y/y in Q2. 

Environmental Services margins expanded ~140bps y/y to 26.1% in Q2 despite lower incinerator utilization and the dilutive impact of the Thompson acquisition. 

Sommer thinks that the Environmental Services market structure looks increasingly similar to Solid Waste following the latest round of consolidation and believes a ~30% segment margin could be attainable over time.

The analyst adds that CLH remains one of the favorite ideas in the Environmental Services space. 

 For FY23, Sommer increased adj. EPS estimate to $7.23 (prior: $7.02). For FY24, the analyst increased adj. EPS to $8.06 (prior: $7.92). 

On the negative side, CLH lowered 2023 SKSS EBITDA guidance by another ~13% as the summer driving season failed to stabilize base oil demand.

For FY23, the analyst reduced the revenue estimate to $5.439 billion (prior: $5.513 million). For FY24E, the analyst declined the revenue estimate to $5.635 billion (prior: $5.719 billion).

Price Action: CLH shares are trading higher by 0.30% to $168.30 on the last check Thursday.