Jefferies Assumes Coverage Of HSC And Reiterates Its Buy Rating

Jefferies is assuming coverage of Harsco HSC and reiterating its BUY rating. It believes HSC's sales growth and margin improvement strategies will drive an earnings recovery in 2011-12 despite difficulties in the flagship Infrastructure operation. HSC is enduring a 2nd consecutive year of earnings pressure, owing to weakness in commercial construction. Jefferies is negative on this market, but HSC's strategies should forge an earnings recovery which it does not believe is reflected in the valuation. HSC began to restructure with the downturn and has since lowered costs by $125M, or $1+/share. It is now targeting cost reductions in manufacturing. Two strategies hold promise: its "Clean Sheet" program in steel mills will reduce on-site labor; and its supply chain initiative with IBM should lower purchasing costs. Jefferies is lowering its EPS forecasts as follows: in 4Q10 by $0.10 to $0.06; and in 2011 by $0.03 to $1.42. It is establishing a 2012 estimate of $1.92. Jefferies 2011-12 estimates are broadly in line with the Street. Jefferies has a Buy rating and $35 PT on HSC HSC closed Monday at $23.34