My bullish thesis on Harsco (HSC) in August of 2020 was basically a macro-econ call – as the global economy got back underway, steel utilization would pick up (driving demand in Environmental), hazardous waste streams would recover (driving Clean Earth), and deferred transit rail maintenance would eventually get done.
That all worked pretty well up until the fourth quarter earnings report, as the shares were actually outperforming Parker-Hannifin (PH) and Kennametal (KMT) since my last update. Now, these are very different companies, but they tend to do well as early-cycle recovery plays, so that’s why I mention them. After earnings, though, and management’s weak guide for ’21, the stock got beaten down and the return since my last article has more or less tracked the broader industrial space – not bad (up 28%), and definitely better than the S&P 500 (up 13%), but not quite what I hoped to see.
I believe this story can still provide some delayed gratification, and I think the long-term potential of the Environmental and Clean Earth businesses is attractive. I think Rail would be better in somebody else’s hands, but I would expect management to hold on until better performance can support a better sale multiple.
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