CVA

Covanta Holding Corp

Industrial/Transportation


Presented:08/15/2017
Price:$13.70
Cap:$1.78B
Current Price:$20.26
Cap:$2.66B

Presented

Date08/15/2017
Price$13.70
Market Cap$1.78B
Ent Value$4.55B
P/E RatioN/A
Book Value$2.64
Div Yield6.65%
Shares O/S130.00M
Ave Daily Vol1,388,550
Short Int16.16%

Current

Price$20.26
Market Cap$2.66B
Covanta Holding Corp. engages in the operation and ownership of infrastructure for the conversion of waste to energy, and related waste transport and disposal and other renewable energy production businesses. It operates large-scale Energy-from-Waste and renewable energy projects. Its energy-from-waste serves two markets as both a sustainable waste disposal solution that is environmentally superior to landfilling and as a source of clean energy that reduces overall greenhouse gas emissions and is also considered renewable under the laws of many states and under federal law. The company was founded on April 16, 1992 and is headquartered in Morristown, NJ.

Publicly traded companies mentioned herein: Covanta Holding Corporation (CVA), Republic Services Inc (RSG), Waste Management Inc (WM)

Highlights

Covanta Holding Corporation (CVA) appears to be “whistling past the graveyard” as it presses forward with its new Dublin facility and talks-up future growth investments. The company is a leader in Energy-from-Waste (EfW) in the US, with ~70% share, but it has historically faced numerous challenges (including bankruptcy in 2002 and regulatory/ environmental issues). And, with aging, high-cost infrastructure, a highly levered balance sheet (7x), a hefty dividend to support (~$1/ share, or 7.4% annually), and lower power prices in its core regions of operation, it is becoming increasingly likely that the stock is materially overvalued at 10-11x 2017-18 EBITDA. Given CVA’s lack of pricing power, ongoing capex requirements, and high level of indebtedness, the presenter believes there is the potential for the dividend to be cut and/ or the multiple to contract. He reasons that 9x EBITDA is a fairer, but still potentially generous multiple; and based on his 2018 EBITDA forecast shares could trade down to $6 over the next 12-24 months.

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