Why Covanta Holding (CVA) Is Down Today

NEW YORK (TheStreet) -- Covanta Holding (CVA) was falling 5.9% to $17.55 on Wednesday after the waste combustion facilities owner reported fourth-quarter earnings per share that failed to meet analysts' expectations.

The company reported adjusted earnings per share of 18 cents in the quarter, short of the Zacks consensus estimate of 21 cents. For the full year, Covanta posted EPS of 38 cents, which was in line with the consensus estimate but also declined 20 cents from 2012. The main factors in the decline were lower operating income, a higher effective tax rate, higher interest expense and lower equity income, the company said.

Total revenue for the quarter was $422 million, just short of the consensus estimate of $423 million. Full-year revenue totaled $1.63 billion, which edged out the Zacks consensus estimate but declined 0.8% from revenue of $1.64 billion in 2012. The decline stemmed from lower construction revenue. Covanta said.

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TheStreet Ratings team rates COVANTA HOLDING CORP as a "buy" with a ratings score of B-. TheStreet Ratings Team has this to say about its recommendation:

"We rate COVANTA HOLDING CORP (CVA) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, expanding profit margins, growth in earnings per share and increase in net income. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 6.4%. Since the same quarter one year prior, revenues slightly increased by 3.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Net operating cash flow has increased to $170.00 million or 37.09% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 9.43%.
  • 38.64% is the gross profit margin for COVANTA HOLDING CORP which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 6.55% trails the industry average.
  • COVANTA HOLDING CORP has improved earnings per share by 15.8% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, COVANTA HOLDING CORP increased its bottom line by earning $0.87 versus $0.58 in the prior year. For the next year, the market is expecting a contraction of 55.2% in earnings ($0.39 versus $0.87).
  • The company, on the basis of net income growth from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Commercial Services & Supplies industry average. The net income increased by 7.7% when compared to the same quarter one year prior, going from $26.00 million to $28.00 million.
  • You can view the full analysis from the report here: CVA Ratings Report

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