Insider transactions with several waste management companies now total in the hundreds of millions of dollars. Furthermore, new advancements that have come about due to environmental concerns have also helped fuel the expansion of new ways to address the world's mounting waste issue.
Then again, of what do investors think when they think about waste management? Well, for obvious reasons, Waste Management Inc. (WM, Financial) generally comes to mind and certainly considering its growth, rightfully so. In fact as of the most recent reporting period ending Dec. 31, 2016, results from financial site InsiderMonkey showed major investment from institutional investors.
Between the top three institutions holding shares (based on total size of position) of Waste Management, the total number of shares held was over 53 million or roughly $3.8 billion alone. As far as hedge funds go, Renaissance Technologies, Two Sigma Advisors and Mario Gabelli (Trades, Portfolio)’s GAMCO Investors lead the way with holdings totaling more than $340 million.
Similarly, Republic Services (RSG, Financial) also reported significant institutional investment as of the same reporting date in December. In total, the top four institutions, which included the likes of State Street Corp. (STT, Financial), Franklin Resources (BEN, Financial), American Century Companies Inc. and Blackrock Fund Advisors, amounted to more than 37 million shares valued at more than $2.7 billion as of this week. I highlighted Republic in a previous article and pointed out that 2017’s guidance depicts a bright future for Republic. Company CEO Donald Slager is taking aim at further expanding on margins and further revenue growth.
Moody’s Investors Service recently declared the company's Baa3 senior unsecured rating and changed the outlook from stable to positive. Furthermore, the majority of analyst firms covering the stock rate this as a strong buy with the minority rating this as a hold at the very least.
But this waste management industry is far more than just managing landfills or collecting garbage. Several companies have built a business around innovating the industry as it stands today. Take for instance BioHiTech Global (BHTG, Financial). The company focuses on mid to large-scale enterprises that have large amount of organic waste. Through the company’s flagship Eco-Digester, they literally take this waste, decompose it into a liquid runoff and can then simply tap into a standard sewer line and discharge the organic liquid “leftovers.” Where many companies in the “innovation” stages of development focus on simply building a business to eventually turn revenues, BioHiTech has already reported relatively significant growth on a year-over-year basis.
In recent news the company also announced it will not only be servicing larger clients but has also unveiled a product, Revolution Series Digesters, that will focus on lower volume food waste generators. Specifically, this new line will target full and quick service-style restaurants, hospitality companies and food service providers of which the company stated represents more than 1.5 million potential customers; an untapped market for this company until this recent launch.
This alternative means of waste management taps directly into some of the bread and butter of the larger industry participants. Combined, Republic and Waste Management had nearly $20 billion in revenue from collection and landfill services. Without a need for a landfill or collection, “eco-friendly” alternatives could maintain their own placeholder within the industry and even the smallest market share taken away from this segment could be impactful for companies operating in it.
In line with this, US Ecology (ECOL, Financial) has found its niche in handling hazardous and radioactive waste for commercial and government enterprises. Since early November shares of the company have been climbing from the high $30s to mid-$50s in recent weeks. The company targets its market and leans on its ability to meet the requirements of ISO9001, 14001 and OHSAS 18001 standards.
Despite the recent miss on 2016 results, company CEO Jeff Feeler stated that a recent uptick in the industrial sector that has been observed in the first quarter “bodes well for [its] 2017 business outlook given the tendency of the hazardous waste industry to lag industrial cycles." One industry that may help boost the bottom line for US Ecology could be its close neighbor, Tesla Motors (TSLA, Financial).
The recent groundbreaking and development of its Gigafactory just a few hundred miles away from US Ecology could generate significant amounts of hazardous waste created from the lithium battery production process. The Gigafactory is slated to reach full capacity by 2018 according to the automaker and is expected to produce more lithium ion batteries annually than were produced on the entire planet in 2013.
Similar to US Ecology, Clean Harbors (CLH, Financial) has focused on the hazardous waste management, industrial cleaning and even emergency spill response segments of this market. They aren’t necessarily targeting door-to-door waste removal but more along the lines of industries that can negatively impact the environment like oil and gas operations. Though revenues decreased in 2016 and Clean Harbors reported a GAAP net loss of 69 cents per share (just under $40 million), share prices for the company have actually increased over the last several months as well as the time since releasing these results.
Company CEO Alan S. McKim said that these results were in line with what was expected; due to overall cost reduction efforts, management holds a bright outlook for what 2017 has in store.
“In the fourth quarter, our Safety-Kleen segment continued its strong top-line performance, increasing revenues by 15% and profitability by 35%. This growth was supported by higher base oil and lubricant pricing and acquisitions. Revenues from Technical Services declined from a year ago due to industrial weakness, project deferrals and reduced year-end customer spending. Incinerator utilization was strong – increasing to 90% – while our fourth-quarter landfill volumes fell 28% from those in the prior year. Within Industrial and Field Services, we increased profitability despite lower revenue resulting from the sale of our Catalyst Services business and weakness in Western Canada. The year-over-year slowdown in energy markets continued to pressure our Oil, Gas and Lodging Services business,” stated McKim in a recent earnings report.
Of the nine analyst firms covering the stock, seven of them rate Clean Harbors anywhere from a Hold to a Strong Buy. Renaissance Technologies, Pivot Point Capital and Citadel Investment Group hold the three leading positions among hedge funds reported as of Dec. 31, 2016, with a total holding of over 1.5 million shares, which is valued at roughly $88 million. Among institutional investors for the same period, Wellington Management Group, Southernsun Asset Management and Arrowpoint Asset Management hold the three top spots with a total holding value of about $713 million according to information provided by InsiderMonkey.
Disclaimer: The author owns zero shares in any companies mentioned within this article. The author is affiliated with Midam Ventures LLC a company which has an exisiting marketing & awareness contract with a non-affiliate third party Woodgrove Enterprise to provide marketing & awareness for BioHiTech Global (BHTG). The author has not been compensated to write this article.
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