By Tom Konrad, Ph.D., CFA

You don’t have to own mining companies to benefit from rising metals prices.

This is a roundup of first quarter earnings notes shared with my Patreon supporters over the last week. Waste to energy operator Covanta and specialty metals recycler Umicore are both benefiting from skyrocketing metals prices.

Just as renewable energy and energy efficiency stocks have long shown that investors don’t have to own fossil fuel companies to benefit from rising prices of fossil fuels, recyclers like Covanta and Umicore are showing that you don’t have to own environmentally damaging mining companies to benefit from rising metals prices.

Covanta Earnings

Everyone could find something to like in last week’s first quarter earnings at Covanta (CVA).  

Revenue and income all showed strong growth over the prior year.  This was driven by strong pricing trends in metals, waste disposal (“tip”) fees, and energy prices.  These gains were achieved despite higher planned outages for maintenance in 2021 compared to the prior year.  This will reduce the need for additional maintenance outages later in the year.

In addition, the company increased its guidance for the full year, and expects further improvements to come from the strategic review as it renegotiates contracts or closes unprofitable operations.  It seems likely that many of these renegotiations will come at the 19 municipally owned plants in the US that it operates under contract.  The company also anticipates significant savings from overhead.

In short, everything is coming up roses.

• The company is performing well
• The macroeconomic environment is favorable
• New plants will be coming online over the next 3 years in the profitable UK market
• Additional savings are expected from the strategic review.

Covanta is definitely a stock to hold even in this relatively overvalued market.

Umicore and Hydrogen

Umicore (UMICF, UMICY, UMI.BR) released its first quarter update as well as a presentation on its positioning in the hydrogen economy in late April.  

In the business update, they’re driving with fully charged batteries:

• Metals, and especially the precious metals, prices are soaring, boosting their recycling business (which also increased its volumes)
• Automotive production is recovering, helping their catalysis business.  The shift away from light duty diesel vehicles is also helping them increase market share.

Umicore currently expects its 2021 earnings to slightly exceed the guidance released just in February.

Hydrogen

With much talk of the hydrogen economy, especially in Europe, Umicore released a timely presentation on how they have and expect to participate.  The company already has a strong position as a supplier of catalysts for the PEM fuel cells used in Fuel Cell Vehicles (FCVs), and have won a number of supply contracts for future fuel cell vehicle platforms.  As of 2020, Hyundai Motor has produced 6,781 Fuel Cell Vehicles using Umicore as a supplier.

They also announced a new partnership with Anglo American Platinum (AAL.L, ANGPF, ANGPY) to develop a liquid carrier which would be used in hydrogen transportation.  They see significant long term growth potential in both this and as a supplier of catalysts to the electrolyzer market.

Conclusion

It was hard to describe Umicore as a value stock when I added it to the 10 Clean Energy Stocks list at the start of the year, and it’s even harder today, given the 30% appreciation since then, I continue to value it for the exposure it gives to the materials used in clean transportation technologies.  Other ways to get this type of exposure include mining stocks and electric vehicle companies like Tesla (TSLA).  I do not invest in mining companies because of environmental concerns, and I do not invest in “story” stocks like EV manufacturers because I like to focus on “boring” stocks that benefit from the same trends, but not everyone is talking about.

It’s much easier to get an edge in your investment analysis when you are one of the few investors paying attention.  

DISCLOSURE: Long CVA, UMICF.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

The post Earnings Roundup: Metals Prices Boost Covanta and Umicore appeared first on Alternative Energy Stocks.

by Tom Konrad, Ph.D. CFA

Two more earnings notes I shared with my Patreon followers on February 18th.

Covanta Holdings (CVA)

Leading waste-to-energy firm Covanta Holdings (CVA) announced 2020 earnings today.  There will be a conference call tomorrow morning, but here is my high-level impression:

The company managed well through Covid and ended the year within it’s original pre-covid guidance.  Metals and energy prices, as well as increased maintenance capital expenditures were a drag on results, but  prices are improving and capital expenditures will fall in 2021.

The company is conducting a strategic review which will likely result in the sale of some underperforming assets.  I expect any money raised this way will go to pay down debt, as will retained cash flow from its dividend reduction last year.  

As I wrote in April 2020, while covid was the excuse for the dividend reduction, the underlying reason was that the company’s debt and dividend were too high. That opinion has not changed, so readers should not expect to see a dividend increase as a result of the ongoing strategic review, which management expects to conclude by the middle of the year.  

Rather, I expect the dividend to be maintained at its current level while the company strengthens its balance sheet and invests in growth projects.  This should be  good for the company’s long term prospects, but I don’t expect anything spectacular to happen to the share price in the short to medium term.

Hannon Armstrong (HASI)

Sustainable infrastructure financier Hannon Armstrong (HASI) was down on earnings today.    I did not see anything bad in the earnings report, so I think the cause is just that the stock is overvalued, and the new guidance of 7-10% annual earnings growth does not justify its current lofty valuation.

Maybe the stock will decline far enough that I want to buy it again… not likely without a major market decline, which is probably not something I should “hope” for, but it would definitely be a silver lining.

Love the company, hate the price.

DISCLOSURE: Long CVA, HASI

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

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by Tom Konrad, Ph.D., CFA

Earnings Season Continues

Below are three more updates on second quarter earnings which I’ve been sharing with my Patreon supporters.  If you’d like to support my writing and see those thoughts in a more timely manner, consider becoming a patron. becoming a patron.

For everyone else, I’m reprinting those thoughts below.

Disclosure: Long NFYEF, CVA, GPP, GPRE.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

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by Tom Konrad, Ph.D., CFA

Market Decline

Last week I warned “The risks in today’s stock market outweigh the possibility of future potential gains.”  Looks like we’re seeing those risks manifest in short order.  The last couple days’ decline have me looking at a few stocks to start adding to my positions again, especially MiX Telematics (MIXT) discussed on June 2nd and Green Plain Partners (GPP), discussed below.

Note that this pullback could easily be very early days of a much larger market decline.  We might even see the market fall far enough to test the March lows… any of my buying now is just small amounts, with most of my buying power held in reserve.  As I wrote last month, I balance the level of my buying or selling against my confidence in the valuations of the stocks in question and my predictions of market trends.  Right now I think we’re starting to see some good values in a few stocks again, but I think it’s likely that we will see much better valuations in the weeks or months to come, so I am mostly holding on to my cash and waiting for better values to be created by continued declines.

On the other hand, there’s also a chance that we’ll see an immediate rebound in the next week, which is why I’m doing a little buying now.

The three updates on the individual stocks in the model portfolio which I wrote for my Patreon supporters earlier this week:

Green Plains Partners (GPP) Secures Financing

Disclosure: Long positions all the stocks mentioned.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

The post 10 Clean Energy Stocks for 2020: Updates on GPP, HASI, CVA appeared first on Alternative Energy Stocks.

by Debra Fiakas, CFA

Waste handler Covanta Holding Company (CVA:  NYSE) reported financial results for the first three months of the year at the beginning of May 2020.  True enough the net loss might have been wider than published estimates for the quarter, but the consensus target did not reflect a one-time, non-cash charge for asset impairment.  Indeed, Covanta’s sales climbed year-over-year to $468 million, of which $61 million was converted to operating cash flow.  Waste handling is considered an essential service so Covanta operations remained at full operations even as many of its customers were subject to work stoppages and stay-at-home policies to stop the spread of the coronavirus COVID-19.

The numbers must have triggered a widespread sigh of relief.   In early April 2020, when Covanta leadership cut the company’s generous dividend payout, shareholders had apparently expected the worst.  The bad news was accompanied by a withdrawal of guidance for 2020 earnings and a warning that policies to deal with the coronavirus could severely impact Covanta revenue.    Furthermore employee health and safety would require additional spending, cutting into profits.  They promptly took a cleaver to CVA shares, sending the price to historic lows.

In retrospect the dividend cut may seem a bit drastic given how well the company came through the first quarter.  That said, the worst of the crisis came later in April and May 2020.  To learn how Covanta handled conditions in those weeks shareholders will have to wait until early July 2020, when Covanta reports financial results for the quarter ending June.

Part of the company’s success in the first quarter 2020 was the result of clever negotiations with customers and forward-thinking contracts with price escalators.  The company reported same-store average tip fee increases by 5% in the quarter.  Much of the company’s tip fee revenue comes from processing residential waste on behalf of municipalities, for which volumes have remained strong.

There are reasons to be cautious in taking a position in CVA.  The company is well leveraged with over $2.6 billion in debt on its balance sheet.  That represents an exceptionally high debt-to-equity ratio of 843.9.  Nonetheless, earnings often trump balance sheet circumstances.  Based on cash earnings over the last twelve months Covanta’s interest coverage multiple was 2.4 times at the end of March 2020.  This compares well to 2.5 times for the year 2019, but leaves little room for further slippage.

Having prepared for the worst in the first quarter report, shareholders will probably still brace themselves for Covanta’s second quarter results.  The company will have been subjected to coronavirus pandemic conditions throughout the entire quarter.  Management may have been able to apply lessons learned in the first quarter to help smooth out the worst bumps.  Investors appear to believe they will be successful.

The stock has recovered by 37% over the all time low set in April, pushing back up through a line of volume-related price support/resistance at the $8.50 price level.  Another good quarter report could move the stock back closer to the pre-crisis level near $15.00.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. The author of this article holds a beneficial interest in CVA shares.

This article was first published on the Small Cap Strategist weblog on 6/4/20.  

The post Covanta Rebounds appeared first on Alternative Energy Stocks.

by Tom Konrad, Ph.D., CFA

Last week, two of the stocks in my Ten Clean Energy Stocks model portfolio cut their dividends.  Covanta Holding Corp (CVA) dropped its quarterly payout from $0.25 to $0.08 (a 68% cut) while Green Plains Partners (GPP) slashed its quarterly distribution from $0.475 to $0.12, a drop of 74.75%.

Before reducing their dividends, both companies had payout ratios near 100%, meaning that substantially all of their free cash flow was going to pay dividends.  In general, companies are very reluctant to cut their dividends because it is a signal that their management thinks they cannot grow without retaining more cash, and it typically sends the stock price tumbling.

I initially included both in the model portfolio because I believed that there were unlikely to be any near term factors that would force either to cut its dividend.  For Green Plains, I felt that a possible recovery of the ethanol market would lead to substantial capital gains, and that the then 14.3% dividend yield was sufficient compensation for the risk if the ethanol market remained in its then miserable state.  For Covanta, I saw a company with solid growth plans which would likely allow it to increase its cash flow in 2 to 3 years, after which it could start paying down its substantial debt load without having to cut its dividend.

The Coronavirus pandemic changed this calculation: all companies are experiencing business disruption, and dividend cuts for both became priced in when their stock prices fell more than 50%.  Investors’ no longer were concerned that these companies might not be able to maintain their dividends: they knew dividend cuts were coming as a near certainty.

Note: My supporters on Patreon got an early look at this article.  Want to support my work and get previews of my writing?  Join them here.

Differences

While the parallels are obvious, a deeper dive reveals significant contrasts.  Ethanol is a direct competitor for gasoline, so the large drop changed what had already been some of the toughest ethanol market conditions in years into one where even the most efficient producers lose money on every gallon of ethanol they sell.  With ethanol producers shutting down refineries, GPP’s transportation and storage facilities are also seeing less business.

Covanta

In contrast, energy from waste firm Covanta’s revenues are much more stable.  Approximately three quarters of Covanta’s revenue comes from tip fees- the money the company is paid by haulers to accept trash.  Of the remaining, most is revenue from electricity sales, plus small slice from the sale of metals recovered from the ash left after incineration.

The majority of Covanta’s trash is residential.  At least in my New York town, the the stay at home order has led to higher residential trash volumes being taken to the transfer station.  Apparently, now that people are spending more time at home, they are taking the opportunity to declutter.  This trend may also be a boon to another recent stock pick, Ebay (EBAY).  If this local increase in trash volume is indicative of the general trend across the Northeast (where the majority of Covanta’s plants are located), the tipping fee portion of its revenues are likely safe.  The company’s medical waste disposal business even offers some potential for upside out of the crisis

While the quarter of Covanta’s revenue which comes from energy and recycling is likely to fall in the short term, the majority of its revenue seems safe.  If the government decides to do an infrastructure program to stimulate the economy as the crisis abates, that should lead to a recovery of the prices Covanta is able to get for its recycled metals.

Green Plains Partners

The Green Plains Partners also can expect its revenues to remain relatively stable despite the miserable state of the ethanol industry.  This is because GPP enjoys take-or-pay arrangements with its parent, Green Plains (GPRE).  As long as GPRE remains solvent, Green Plains Partners’ revenue should remain relatively stable.

With ethanol producers operating at negative margins, and rapidly taking ethanol facilities offline, it would not do to take GPRE’s solvency for granted.  However, the company is relatively well capitalized and has also been taking steps to improve its capital resources.

Green Plains, Inc. suspended its own dividend in mid 2019.  In a presentation to investors on March 4th, the company summarized its efforts to improve its balance sheet.  It realized approximately $780 million in proceeds from asset sales between October 2018 and December 2019.  It used these sales to reduce or deconsolidate debt by nearly $1 billion, and had $270 million in cash on hand.

Other than Green Plains Partners’ revolving credit facility, Green Plains, Inc, does not have significant debt maturing before 2022.  Green Plains Partners needs to replace its revolving credit facility before it matures on July 1st.  Under normal circumstances, I would not be concerned about the prospects of replacing the facility, but this year is not what anyone would consider normal circumstances.

The April 16th press release which announced the dividend cut also quoted Todd Becker, president and chief executive officer of Green Plains Partners: “We believe this decision by our board of directors will strengthen our balance sheet for the benefit of all stakeholders and create long term value for our unit holders.  We are currently working with our existing lender group to extend our credit line which will likely include a change to overall commitment levels and pricing, as well as require principal amortization as part of the transaction. Our goal is to pay off the debt within the next 18 months through this distribution reduction and other actions.”

I take this quote to mean that GPP has made significant progress in its negotiations with lenders, and that the dividend cut is part of what was needed to get the lenders to agree to extend credit.

Given all these factors, it is no surprise that GPP cut its dividend.  However, both GPP and GPRE seem to be doing what it takes to make it through this crisis.  Long term, GPP is likely to come out of this as a stronger company with less debt.

Conclusion

Given the hard times the ethanol industry is experiencing – due both to low price of gasoline (with which it competes) and political favors to oil refiners from the Trump administration, it’s no wonder than Green Plains Partners is trading at about a third of its already-depressed price from the start of the year.  I don’t expect the company to recover its losses, but I expect to see significant stock price gains in the near term if the company announces new financing to replace the expiring revolving credit facility.

In contrast, I am at a loss to explain the full extent of Covanta’s recent decline.  When a stock declines and I can’t explain it, my usual reaction is to buy.  Which is what I am doing.

Disclosure: Long CVA, GPP, GPRE, EBAY.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

The post Covanta and Green Plains Partners Don’t Let A Crisis Go To Waste appeared first on Alternative Energy Stocks.

If ‘food waste’ was a country it would be ranked as the third largest emitter of greenhouse gas emissions in the world behind only China and the United States.  To reach this conclusion the World Resources Institute used food waste data in 2011, and considered agriculture inputs, food processing, land use, deforestation, food waste disposal, and landfill impacts.

The carbon footprint of wasted food is a big one with cereals contributing about 35% of the greenhouse gas emissions even though is only about 19% of food waste volume.  Meat on the other hand is a small part of the food waste problem as it is not thrown away with as much frequency.  However, producing food for meat animals, handling animal manure, and all those belching cows cause meat to contribute as much as 20% of food waste emissions.

It is a messy business, but many believe discarded food should be considered a valuable resource and not waste.  The World Resources Institute reports that food waste in 2014 was estimated to hold a total of 2,142 petajoules of discarded energy, which is about 8% of the energy consumed annually around the globe.  As the world frets over global warming and the harm caused by combusting fossil fuels, it seems like an 8% contribution to energy needs makes a great deal of sense.

Blue Sphere (BLSP:  Nasdaq) operates waste-to-energy facilities in the U.S., Italy and The Netherlands.    Blue Sphere scrounges the country side for what others consider waste, including food scraps,  rejected produce, agriculture straw, livestock manure, and municipal waste.  The company uses industrial scale digesters to convert the organic material to electricity that is sold to local utilities through power purchase agreements.  Solid materials are converted to soil amendments and sold to local landscapers or farms.

Blue Sphere missed several deadlines in getting its North Carolina and Rhode Island operation up and running.  Investors were justifiably disappointed with the pace of progress.  However, Blue Sphere engineers finally got the digesters and generators for both projects going in late 2016.  The North Carolina plant is rated at 5.2 megawatts and Rhode Island is 3.2 megawatts.  The company is currently developing on yet another plant in The Netherlands that will produce biofuel and soil amendments.  The acquisition of five small waste-to-energy plants in Italy helped jump start aggregate electricity output for the company.

Investors who want to put capital into a food waste solution may find Blue Sphere an unpalatable choice.  The company stopped filing financial reports with the SEC in 2018 and its stock trades at sub-penny levels.  Despite its operational struggles and lack of success as a public company, Blue Sphere has proven that food waste has a value in energy production and that it is possible to reduce the massive economic drain that is created by the ‘cult of perfection’ that leads to a loss of 40% of the value in  the food supply chain.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

This article was first published on the Small Cap Strategist weblog on 10/25/19 as “Electrifying Food Waste.”  This is part of a three part series on battling food waste.  The first two installments can be found here and here.

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by Tom Konrad Ph.D., CFA

Covanta Holding Corp. (NYSE:CVA)
12/31/18 Price: $13.42.  Annual Dividend: $1.00. Expected 2019 dividend: $1.00.  Low Target: $13.  High Target: $25.
3/26/19 Price: $17.86. YTD Dividend: $0.25. YTD Yield: 1.9%  YTD Appreciation: 33.1% YTD Total Return: 34.9%

Leading waste-to-energy operator Covanta’s stock has been the second best performing holding in my 10 Clean Energy Stocks for 2019 model portfolio.  While in many ways the company is similar to the clean energy Yieldcos that dominate the model portfolio, it is different in that it develops its own projects, while most Yieldcos depend on a sponsor to develop projects which they buy at close to market prices.

A normal Yieldco depends on a strong share price or cheap debt financing to maintain its dividend per share growth.  Without cheap equity or debt financing, a Yieldco can grow in size, but the equity dilution or the cost of the financing prevent much of the new cash flow from flowing through to dividends.

Covanta is like a Yieldco in that it owns clean energy installations which, in Covanta’s case, are Energy-from-Waste (EfW) and metals recycling operations as opposed to the more typical wind and solar farms.  Covanta is unlike the typical Yieldco in that it develops most of its new operations in-house.

The growth potential of this strategy was on display in the company’s first quarter earnings call when management outlined the financial requirements of it’s Rookery Project in the UK, which it is developing with financial contributions of Green Investment Group (GIG) and Veolia (VEOEF, VEOEY, VIE.PA).  The project reached financial close in March and is expected to process around 545,000 metric tons of waste annually.

The Rookery Project has begun construction and is expected to begin commercial operations in 2022.  Once complete, Covanta will operate the plant under a long term contract, while Veolia will supply the majority of the waste.  Covanta and GIG will each own 40% of the project, while Veolia will own the remaining 20%.

Rather than having to pay money up-front, the terms of the partnership allowed Covanta to receive $44 million when the project reached financial close. This can be used to help fund Covanta’s future capital commitments during construction.  Covanta’s share of total construction costs will be £60 million or US$80 million.  The $44 million received at financial close was part a recovery of Covanta’s development costs to date plus premiums for the work done so far and GIG’s right to invest in the project based on anticipated future returns.

Altogether, Covanta’s net investment in the project is expected to be $40 million, which the company expects to be approximately one third of the annual free cash flow from the project.  Going back to the Yieldco analogy, most Yieldco investments cost around one tenth of annual free cash flow, or more than three times the anticipated cost of this project to Covanta.

The company is also benefiting from a strong waste market, which allowed it to increase its tipping fees by five percent (year over year) in the first quarter.

It is no wonder then that Covanta’s stock, which had been trading at a Yieldco-like yield of 7.4% at the end of 2018 has risen 33% since then, and jumped by over 3% when earnings were announced.

Disclosure: Long CVA, VEOEF.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

The post Covanta’s Q1: Ten Clean Energy Stocks For 2019 appeared first on Alternative Energy Stocks.

Well into the early 1900s ash collectors plied the streets of America’s cities, picking up ash buckets left at curbs and stoops by households and businesses.  The ash collectors sold as much as possible for brick making and soil improvement.  The rest went to the handiest dumps.

Since then large utilities have taken over the job of heating and lighting buildings.  Coal-fired power plants have become the largest producers of ash.  The American Coal Ash Association reports that 53 million metric tons of coal cash were generated in 2013, of which 23 million metric tons were re-used for cement and bricks.  The rest was stored in landfills or special disposal sites, in such large quantities presenting potential sources of pollution for nearby water bodies.

There are other sources of ash.  Municipal waste is increasingly diverted from landfills to incineration in waste-to-energy systems.  At the beginning of 2018, there were 86 municipal waste incinerators in the United States, burning about 29 million tons of garbage annually.  These incinerators produced about 0.4% of total U.S. electricity in 2015.    Besides electricity these incinerators produce a lot of unburnt material and plenty of ash.

Ash generators have changed but the ash is just as dirty and vexing as ever.  Waste handler Covanta, Inc. (CVA:  NYSE) has developed a solution for its own ash problem.   The company is building its first Total Ash Processing System in Fairless Hills, Pennsylvania.  It will have the capacity to process as much as 400,000 tons of ash collected by the company’s waste-to-energy sites.  The company claims it will reduce the amount of ash headed for landfills by 65%.

As impressive as the reduction in landfill deposits might seem, what is particularly attractive about Covanta’s ash handling solution is that it turns most of the ash into a potential revenue stream by recovering valuable metals.  Physical separation methods applied to municipal waste typically recover valuable ferrous metals and other building products such as sand. However, bottom ash in the incinerators also contains significant amounts of precious metals, including silver and gold that are not recovered by physical separation.  Sales of recovered metals will help cover the costs of the added processing to reduce landfill waste.

Covanta management was provided little color on the estimated value of the metals they expect to recover from at the Fairless facility.  However, they have cited “attractive return on capital” in their new Total Ash Processing System.  If it is successful, we expect Covanta will do some bragging in the coming quarter reports.

In the trailing twelve months Covanta converted 15.8% of its $1.9 billion in total revenue to operating cash flow.  The largesse is enough to support capital investment, growth projects and a handsome dividend.  The new ash treatment process may not represent a revolution in Covanta’s business model, but conversion of waste ash to metals could support continued conversion of revenue to cash.

Many might view the current stock price as attractive for bull-case position in Covanta the ash collector. The company’ stock established a new 52-week low in late December 2018, apparently in sympathy with the rest of the U.S. equity market.  Since then the stock has pushed back up through a line of volume-related support/resistance, giving investors some downside protection for new long positions.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

This article was first published on the Small Cap Strategist weblog on 1/15/19 as “Covanta Turns Ash Collector.” 

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