| NEW YORK, April 1
NEW YORK, April 1 Even as its share price has
slumped 8 percent in the year to date, hazardous waste manager
Clean Harbors, Inc. has cleaned up in terms of
fund-manager interest as more of them bet on one of the down
sides of the energy boom.
Manufacturers large and small have opened U.S. plants to
take advantage of low energy costs as cheap natural gas and
shale oil transform the United States into one of the world's
largest energy producers, in turn swelling the amount of battery
acids and other chemicals left over from the production process.
The refinery businesses along the Gulf Coast, including
those of Valero Energy Corp, Marathon Petroleum Corp
and Exxon Mobil Corp, have thrived as a result
of higher oil output. Meanwhile, demand has also risen for
companies to treat the byproducts, ranging from wastewater to
That's helped to lure a swarm of fund managers to Norwell,
Massachusetts-based Clean Harbors, which controls about 70
percent of commercial incineration capacity in North America and
about one-fifth of the landfills that can accept hazardous
material, according to analyst estimates, putting it ahead of
competitors like Veolia Environmental Services SA.
Indeed, 43 mutual funds added a position in Clean Harbors
over the last quarter, sending its total ownership up 15 percent
to 460 funds, according to fund tracker Morningstar.
That level of ownership, which includes positions held by
well-known funds such as the $5.8 billion Baron Small Cap
and $8.9 billion Fidelity Mid-Cap Stock fund
, is considered high for a company with a market value
of just $3.3 billion.
In comparison, retailer Rite Aid Corp, one of the
largest small-cap companies in the benchmark Russell 2000 index
with a $6.1-billion market cap, is owned by 469 funds.
The spike in fund ownership comes even as Clean Harbors
faces a sagging stock price and analyst skepticism.
The company missed analyst expectations in its most recent
quarter and lowered its guidance for the year, a fallout from
its attempt to merge the commodities-sensitive businesses it has
acquired over the past few years with its core line of hazardous
waste disposal and clean up.
Its shares are down 8.2 percent since Jan. 1, and 5.2
percent over the last 12 months.
At about $53, the company's share price is just 4 percent
below the median analyst target price of $55.50, according to
Thomson Reuters data. Four out of 14 analysts who cover the
stock rate it a 'strong buy,' down from six analysts who had the
same rating 60 days ago.
VALUE FUNDS KEEN
To be sure, the lagging share price is one reason
value-oriented funds are buying now, fund managers and analysts
"We've been buying it more as it's been getting cheaper and
the story became confusing to people," said Bryant VanCronkhite,
portfolio manager of the $859 million Wells Fargo Advantage
Special Mid-Cap Value fund.
The company missed earnings estimates largely because of the
downturns in its oil-recycling business, which makes up a fifth
of revenues, VanCronkhite said.
Those losses didn't harm the competitive advantages that
Clean Harbors enjoys, including the high barriers to entry in
its field and expertise in fields ranging from landfills to
cleaning up oil spills, he said.
Investors will likely need to see two or more quarters of
cost-cutting and growth before they are convinced that the
company has figured out how to streamline its disparate business
lines, said Scott Levine, an analyst at Imperial Capital, who
has a neutral rating on the stock and recently lowered his
target price to $52.50 from $65.
"Management has indicated that all options are on the table,
which we see as a good sign" that it may sell or contract its
exposure to more commodity-dependent business lines, Levine
The company also said it would buy back up to $150 million
in shares, and has targeted $75 million in cost-cuts that it did
not factor into its earnings forecasts, suggesting it is being
conservative in its outlook, said Adam Thalhimer, an analyst at
BB&T Capital Markets.
Thalhimer maintained his 'buy' rating despite the company's
earnings coming in 8 cents below his estimate of 52 cents a
share, and lowered his target price to $55 from $66.
"There's a longer-term opportunity with Gulf Coast
industrial production. The end markets this company operates in
are good, so the only question is whether it can take advantage
and put up better results," he said.
(Editing by Richard Valdmanis and Bernadette Baum)