Even With Strong Growth Prospects, Advanced Disposal Services Looks Pricey

Solid waste stocks have enjoyed a good run of late, and Advanced Disposal Services (NYSE:ADSW), the latest entrant into the publicly-traded group, has gone along for the ride. The enthusiasm isn't unreasonable on the surface, as ongoing growth in housing, economic growth, reflation, and the prospect for a less environmentally-focused administration all support a generally favorable outlook for the industry.

For Advanced Disposal in particular, there are also company-specific drivers that support a bullish growth outlook, including the prospect for further accretive M&A. All of that said, the valuation here seems more than healthy to me, particularly given the company's vulnerability to higher rates and the possibility that interest deductibility may go away in the process of corporate tax reform. While I do like the outlook for growth and expanding margins, I can't get comfortable with paying a double-digit multiple on forward EBITDA nor assuming ongoing double-digit FCF growth on a long-term basis.

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Even With Strong Growth Prospects, Advanced Disposal Services Looks Pricey

Seeking Alpha: The Market Seems To Believe Veolia Has Turned The Corner

France-based global utility Veolia Environnement (VE) has given investors a pretty wild ride. The company's excessive ambition for growth stoked a lot of bullish sentiment early in the decade, but the combination of Europe's deep recession and sloppy execution lead to disappointing margins, cash flows, and investors.

Veolia management started taking turnaround efforts seriously in 2013, pushing ahead with cost cuts, asset sales, and a restructuring of the company's operating priorities. The company still has a lot to do if its going to produce margins on par with its close peer Suez Environnement (OTCPK:SZEVY), let alone American comps like American States Water (AWR) or Waste Management (WM), but the better than 100% trough-to-peak move tells me that a lot of investors buy the self-improvement story and/or want to be positioned in basic services as Europe's economy turns around.

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The Market Seems To Believe Veolia Has Turned The Corner

Investopedia: Veolia Offers A Decent Dividend, But Both Uncertainty And Upside

When last I wrote about European utility company Veolia (NYSE:VE) for Investopedia (back in March of 2012), I was cautious about the near-term prospects on the stock given the Street's likelihood of buying into (or rather, not buying into) the company's asset disposal and cost-cutting plans. The stock then proceeded to lose about one-third of its value over the next nine months, as worries about both management's ability to execute and the health of Western Europe's economy weighed on shares.

As this was happening, though, the company actually started making progress, and the shares have been moving up strongly since mid-summer as the Street has finally started buying the turnaround story. From where Veolia sits today, I see both opportunity and risk – I happen to side with the bulls who believe management will succeed in its cost-cutting targets, but I also have my worries about the extent to which the company may have to surrender these benefits to customers in order to maintain the business. All told, I see only modest upside to the shares right now, but the dividend isn't bad and I think the company can contain most of the risks it faces.

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Investopedia: Clean Harbors Goes Back To Its Roots In A Big Way

Clean Harbors (NYSE:CLH) is an interesting company. Built around hazardous waste collection and disposal, the company remains a leader when it comes to these services, but perhaps not as many investors are aware of how it has also built a large oil and gas services business (largely through acquisitions). At the end of October, however, the company took a big step back to its roots in announcing the acquisition of Safety-Kleen.

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Investopedia: Clean Energy Building It, Will The Customers Come?

There are a lot of pieces that have to lock into place, more or less simultaneously, for any sort of large-scale conversion to natural gas as a vehicle fuel in North America. Engine manufacturers have to know that truck builders (and buyers) will buy the engines, fleet operators need to know that they'll have a place to fuel up and fueling station operators need to know that there will be enough vehicles out there to pay for the fueling infrastructure.

Oddly enough, while there has been a lot of hot air over the years about the conversion to natural gas, it seems to actually be in the process of happening, and Clean Energy (Nasdaq:CLNE) is playing a major role. Now the question remains: Can Clean Energy earn long-term economic rents on its infrastructure, or will competitors let Clean Energy take on the risk and whittle away their rewards?

 

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Investopedia: Veolia's Dividend Comes At A Cost

One of the lessons that experience will teach an investor is that almost nothing good comes cheap. In the case of income stocks, a high dividend yield may sound great, but it is often the case that an eye-popping dividend comes with a stressed company that may well struggle to maintain that dividend.


Veolia (NYSE:VE) is a good case in point. Management has realized that the Veolia that was, just wasn't a sustainable enterprise, and has launched a fairly extensive program of restructuring. While the dividend here is arguably sustainable, worries about growth and balance sheet restructuring may limit the capital gains potential.


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Investopedia: Casella Waste - Even The Environmental Sector Has Challenges

Perhaps one of the more interesting lessons of the recession and this sluggish recovery has been the deconstruction of the idea of "safe" industries where investors can take refuge in bad times. Food companies have been squeezed by input-cost inflation, healthcare companies have seen patients disappear, and the environmental sector, too, has seen business deteriorate more than many would have guessed.

As a small regional player, Casella Waste Systems (Nasdaq:CWST) has a host of challenges. The company does not have the sort of scale that benefits giants like Waste Management (NYSE:WM) or Republic Services (NYSE:RSG), and its balance sheet probably precludes a lot of expansion on its own. Though there could certainly be some long-term value here, this isn't an especially safe place to wait out the market's turbulence.
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