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Buy Trashed US Ecology And Consolidate A Niche Market

Stephen Rosenman profile picture
Stephen Rosenman
1.52K Followers

Summary

  • US Ecology is consolidating its market.
  • The company has opportunistically acquired hazardous waste landfills.
  • US Ecology has sold off on disappointing guidance.
  • Historically, the company trounces its conservative outlook.

There has not been a new hazardous waste landfill in the US in 15 years and it is unlikely any more will be approved in the foreseeable future. Surrounding communities screaming "not in my backyard!" have made it nearly impossible to get new facilities on-line. Yet, the waste stream has grown. Industrial USA now generates 40 million tons of hazardous waste each year, 5 million tons more than 5 years earlier. Simply, more industrial garbage is going to the same 21 landfills (as shown below).

But it is more than just the static number of landfills. Hazardous waste landfills are not uniformly placed. More than half the states don't have any while Texas and Southern California each have three. Moreover, each of the 21 hazardous waste landfills is permitted for only certain types of waste, creating transportation nightmares as trash crisscrosses the country to facilities able to handle them. For instance, Region V (serving Illinois, Indiana, Michigan, Minnesota, Ohio, and Wisconsin) has only one facility approved to handle PCBs. Radioactive waste is even worse: Only three landfills exist in the US capable of accepting radioactive material. In a nutshell, unless you are willing to pay high transportation costs, your trash options are usually limited to one or two landfills.

Only a few trash companies have hazardous waste facilities. Republic Services (NYSE:RSG) and Progressive Waste (BIN) don't have one. In fact, the 24 landfills capable of receiving hazardous (21) or radioactive waste (3) are owned by just 5 companies. Remarkably, two waste management companies, Waste Management (WM) and US Ecology (ECOL), control half the sites.

I want to draw your attention to tiny US Ecology (market cap $858 million). The Idaho-based Ecology owns 6 of the 24 radioactive (1)/hazardous (4) waste landfills (having just added Wayne, Michigan), secured through a series of opportunistic acquisitions (Stablex for $77 million in 2010, Dynecol for $11 million

This article was written by

Stephen Rosenman profile picture
1.52K Followers
Stephen Rosenman enjoys analyzing the financial health of companies and pointing out areas the market is either not recognizing or ignoring. A long time investor, I put my money where my mouth is. That's why I'm passionate about my positions. I trumpet companies I believe in and back my articles up with data and graphs. Every now and then, I'll write something a little goofy to lighten it up...

Analyst’s Disclosure: The author is long ECOL. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.

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