Cramer cited a potential revenue-and-profit boom stemming from the cleanup, cautioning that the stock's valuation is rich. Clean Harbors is based in Norwell, Mass., and has a market value of $1.7 billion, placing it in the small-cap category, and a beta of 0.3, demonstrating low stock-market correlation.
During the past three years, Clean Harbors has boosted sales 13% annually, on average. However, its net income decreased 4% a year over the same span. Its stock has returned 12% a year since 2007, outperforming the
S&P 500 Index
, which fell 9% a year over the same period. During the past 12 months, Clean Harbors' shares have appreciated 20%. The stock has risen 14% this year.
First-quarter profit more than doubled to $10 million, or 38 cents, as revenue surged 72%. The operating margin inched up from 5.3% to 6.8%. Clean Harbors has $211 million of cash, translating to a quick ratio of 2.4, and $301 million of debt, converting to a debt-to-equity ratio of 0.5. The quarterly boom is attributable to the energy and industrial services division, which recently absorbed Canadian
In the quarterly release, Chief Executive Officer Alan McKim provided few details of his company's role in the BP cleanup, noting that involvement "has yet to be determined and will evolve over time." However, in a May 18 press release, management provided a more thorough disclosure. It revised its second-quarter revenue forecast to a range of $405 to $422 million, 15% to 20% above the First Call consensus.
Since the guidance update, Clean Harbors' stock has risen 7.8%, and the shares may extend their advance. There's no sign of a resolution to the BP oil spill, and Clean Harbors is uniquely positioned to capture gains from the fallout. The company is providing equipment, including boats, containment boom, skimmers and vacuum trucks, and also assisting in oil removal and recycling, and providing training and logistics services.
Cramer's valuation caveat is sound. Clean Harbors trades at a price-to-projected-earnings ratio of 22, a 14% premium to the commercial-services industry average. But its price-to-book ratio of 2.7 and price-to-sales ratio of 1.4 reflect slight discounts. Also, its PEG ratio, a measure of value relative to projected long-term growth, of 0.5 reflects a 50% discount to estimated fair value. So, long-term investors shouldn't be deterred by cost.
The sell-side is optimistic about Clean Harbors. Of analysts covering the company, 10, or 77%, advise purchasing its shares and three recommend holding them.
, which designates Clean Harbors a "top pick," offers a price target of $80, leaving a potential return of 18%.
expects the stock to rise 14% to $77.
predicts that the shares will gain 9% to $74.
is "neutral" on the stock.
Institutional buyers provide a convincing argument in favor of Clean Harbors. Despite widespread "de-risking," 14 of Clean Harbors' 20 largest shareholders, including
Bank of New York
T. Rowe Price
, purchased additional shares during the first quarter. Six decreased their holdings. Although Clean Harbor offers less upside potential than stocks that were battered during the selloff, it's a sure winner during a period of uncertainty.
Another stock that offers a pure play on the clean-up effort is dispersant maker
( NLC), which has dropped 15% so far this year. Nalco booked $40 million of sales, equivalent to 1% of its full-year guidance, in the first week of its Gulf involvement. Its COREXIT 9500 product has been widely used in the area, but has received a bout of bad publicity regarding its environment impact. The Environmental Protection Agency is backing the safety of COREXIT.
-- Reported by Jake Lynch in Boston.