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Barron's: Covanta investors can clean up

  • Waste-to-energy services provider Covanta (CVA +1.2%) is poised to power higher, offering a potential 25% upside with a generous yield after hiking its dividend twice this year, according to a Barron's profile.
  • CVA is a "free cash flow-generating machine," converting ~50% of its EBITDA to free cash; it currently generates ~$260M/year of free cash flow for an attractive 10% yield.
  • A new cost savings initiative, with a targeted benefit of $30M to 2015 EBITDA, combined with the opening of a new facility in Canada and the start of a large waste disposal contract with NYC could lift cash flows significantly in the next year, David Englander writes.
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Comments (7)
  • WhatdoIknow1
    , contributor
    Comments (661) | Send Message
     
    Covanta is very nice. Easy to understand. Pays a very sustainable dividend and is not economically dependent. It's garbage and recycling in a zero rate zero growth economy. Safer than bonds with a higher yield and more potential plus it's liquid enough to move.

     

    Long Covanta
    25 Jun, 12:58 PM Reply Like
  • chudzikb
    , contributor
    Comments (784) | Send Message
     
    I took notice of this company during a cub scout field trip several years ago. We went back twice to the plant. Spoke with management, was impressed with their knowledge of the field. Bought into the company on the dip about 6 months ago, and will continue to hold. They keep announcing more agreements, that can't be bad, can it?
    25 Jun, 02:43 PM Reply Like
  • SDMSF
    , contributor
    Comments (110) | Send Message
     
    not if they are making money on the contracts. from my initial readings it seems they are. I bought a starter position until I can complete my analysis. good luck to all of us.
    25 Jun, 02:59 PM Reply Like
  • Esekla
    , contributor
    Comments (3022) | Send Message
     
    I completely agree that Covanta is a good company, which is why I loved the stock at $17.50 and below. I note, however, that these shallow Barron's articles tend to precede institutional profit taking. Covanta has quadrupled its debt load over the past year, and no research is complete without analyzing the effect of that.
    26 Jun, 11:07 AM Reply Like
  • SDMSF
    , contributor
    Comments (110) | Send Message
     
    agree the effect but also the reason for the increase must be analyzed. if it is an investment in the future I don't mind metrics getting hit short term. is your position that they are overvalued at this time? also that is why I take a small starter position if it stock retreats but I still like the future etc I will just buy more.
    26 Jun, 11:18 AM Reply Like
  • Esekla
    , contributor
    Comments (3022) | Send Message
     
    I also don't mind investment in growth either, but do I mind taking a hit on my purchase price over almost any time frame. My first article on InvenSense contains a nice example of this. Early investors who were completely correct about that company's fantastic long-term growth prospects but paid no attention to valuation and entry point wound up either losing up to half their capital invested or sitting on dead money for two years! That's just not smart investing. Patience is rewarded, but that applies more BEFORE your purchase than after.

     

    So to answer your questions, I'm simply noting that long-term debt means long-term drag on the bottom line. I think CVA is at least fairly valued, and that better entry points are likely in the short term.
    26 Jun, 12:10 PM Reply Like
  • SDMSF
    , contributor
    Comments (110) | Send Message
     
    reasonable and understood. especially about losses. hate them. that said they are using leverage and that will drag on earning short term only, if they are right and of course long term if they are not. as I know you are aware borrowing a dollar to make 10 (chose your own #s) makes sense. will they get taken to the woodshed each weak quarter. most likely. agree buying opportunities but that forgoes any upside where one can trim out till better times come along if we think it justified. no one can predict when they announce new contracts etc. so what is to wait for if fairly valued. obviously it is best to wait till just the day before great news to buy fantastic long term growth but who can really do that. it can also make someone miss early upside moves. valuation methods are subjective and very susceptible to being off the mark. this can all be said about any spec. to me cva is the best kind of spec.(not the definition but my use). I am speculating that (still not finished analysis) that they are in a great business and that there is growth in the business. if each quarter earnings or rev isn't successively larger than the prior but overall track is heading in right direction long term I am fine with it. plus unlike the usually classic specs this pays a dividend. I suppose there was no divs included in the invensense analysis. just real specs? would you say that the concept is a mkt in this case stock timing approach? like the give and take thanks
    26 Jun, 12:56 PM Reply Like
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