Even allowing for some areas of concern that I mentioned in my last article on Harsco (HSC), namely peaking steel production and lackluster results to date in the Clean Earth segment, Harsco’s performance has been quite disappointing. Management makes a decent case that business is better than it appears, but the reality is that numbers have continued to head lower and it’s harder to make the case for a low-margin industrial services business with a lot of debt and a poor track record of free cash flow production.
These shares are down about a third since my last article, and I clearly underestimated the near-term challenges in front of the business. While I certainly think you can argue that current valuation is “undemanding” and that there are some legitimate drivers for the business, a lack of growth and operating leverage in the near term could make outperformance more difficult.
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