Clean Harbors: Buying Trash Stocks

| About: Clean Harbors, (CLH)
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Clean Harbors Inc. (CLHB) is the largest hazardous waste management in North America. The company provides services that include transportation and disposal, industrial cleaning and maintenance, chemical packaging and emergency response to more than 45,000 customers in 36 U.S. states, six Canadian provinces, Mexico and Puerto Rico. The United States alone generates 750,000 tons of garbage everyday, and the average cost for one ton of trash is $35-40. Their customers include more than 325 of the Fortune 500 companies.

CLHB offers a wide variety of services to its customers which include: Waste Disposal, Recycling Services, Chemical Packing, Field Services, Industrial Services, Transformer Services, Apollo Onsite Services (Recommend ways to better manage waste), Material & Supplies Sales, Household Hazardous Waste, Emergency Response. The company stores copper, steel, aluminum, and a dozen other scrap metals and plastics in huge mounds and sells them when there are spikes in commodity prices. Also, the company is planning on drilling into its trash piles to harvest methane gas and use it for generating electrical power (some used by themselves and the rest is sold to local power companies).

Clean Harbors has very few major competitors because there are substantial barriers to entry into the hazardous waste management industry including high regulatory compliance costs and expertise, the arduous federal, state, provincial and local permitting processes for new disposal facilities, and the requirement for an extensive asset network, operating knowledge and major capital expenditures to purchase or construct new disposal facilities. As a result, no new hazardous waste incinerators or hazardous waste landfills have commenced commercial operations in North America in the last decade.

Since 2001, over one-third of all North American commercial incineration capacity has been eliminated, and competition has declined through consolidation and new regulatory conditions that have increased the overall barriers to entry. The number of competitors in the hazardous waste management industry declined from over 20 in the early 1990s to only four major participants today: Waste Management (WMI); Veolia Environment (VE); Republic Services, which recently merged with Allied Waste (NYSE:RSG); and Clean Harbors (CLHB)

Because of the nature of the hazardous material management industry, there is not highly correlated with the rest of the economy. The strong cash flow that CLHB generates will help the company operate in these tough economic times. Also, the recent decline in crude oil prices will increase gross margins.

Clean Harbors had about 71% of its 2007 revenue come from technical services, which includes services that involve the collection, transport, treatment and disposal of hazardous and non-hazardous wastes, and include physical treatment, resource recovery, fuels blending, incineration, landfill disposal, wastewater treatment, lab chemical disposal, and explosives management. Site services accounted for about 29% of its 2007 revenue. These services provide customers with highly skilled experts who utilize specialty equipment and resources to perform services at any chosen location.

The reason that I like Clean Harbors over competitors such as Waste Management is that WM receives about 63% of its revenues from its collection services. Republic Services and Allied Waste also receive a majority of their revenue from their landfill operations. Clean Harbors is a much more vertically integrated company that offers a wide variety of environmental services and hazardous waste management services.

CLHB released 3Q earnings on November 5, 2008 (see conference call transcript). The company missed 3Q earnings estimates by one penny. 3Q revenue of $273.2 million beat estimates and sees to exceed its FY 2008 revenue outlook.

Case in point: Buy Clean Harbors Inc. (CLHB) You can thank me later.

Disclosure: Author holds a long position in CLHB