Softer Steel Markets Hitting Harsco

Harsco (HSC) didn’t have a great second quarter with respect to reported results or guidance, but I believe the 35% decline over the last three months has more to do with the ongoing weakness in the steel industry – the source of around two-thirds of Harsco’s revenue. Acquiring Clean Earth from Compass (CODI) should reduce some of the cyclicality of Harsco’s business, and Rail still has opportunities to do better, but it’s going to be tough to get the Street excited about a business tied to steel when steel stocks are themselves so weak.

Even with weaker near-term expectations, Harsco's shares look undervalued and the current set-up looks pretty good relative to where the shares have traded over the past year. I do have some concerns that the steel business could weaken further (largely on global macro weakness), but businesses like Clean Earth have gotten robust valuations from the Street in years past and even a more cautious set of expectations can support a share price in the $20s.

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Softer Steel Markets Hitting Harsco