NEW YORK (TheStreet) -- Nuverra Environmental Solutions (NES) shares are gaining, up 21.15% to $3.78 in trading on Wednesday, after the company entered into an $85 million definitive agreement with Clean Harbors (CLH) to sell its Thermo Fluids subsidiary.
The full-cycle environmental solutions provider is expected to finalize the sale of Thermo Fluids to Clean Harbors by early March. The sale comes as the company attempts to focus more on its shale solutions business.
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"Our strategy has been to focus on our core shale environmental solutions business, and this transaction is consistent with that approach. We are pleased to monetize our TFI business to provide further support to that strategy. As the leading environmental and industrial services company in North America, Clean Harbors will be an excellent steward for TFI going forward, said CEO Mark D. Johnsrud.
"The addition of TFI's environmental business will perfectly complement our SK Environmental Services business, as well as drive incremental volumes into our hazardous waste disposal facilities," said Clean Harbors CEO Alan S. McKim.
Nuverra shares are trading on heavy volume, about five times the stock's three month daily trading average of 703,000 shares.
TheStreet Ratings team rates NUVERRA ENVIRONMENTAL SOLUTN as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
"We rate NUVERRA ENVIRONMENTAL SOLUTN (NES) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, disappointing return on equity, weak operating cash flow, poor profit margins and generally disappointing historical performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The debt-to-equity ratio of 1.18 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with the unfavorable debt-to-equity ratio, NES maintains a poor quick ratio of 0.91, which illustrates the inability to avoid short-term cash problems.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Energy Equipment & Services industry and the overall market, NUVERRA ENVIRONMENTAL SOLUTN's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to $18.70 million or 53.13% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The gross profit margin for NUVERRA ENVIRONMENTAL SOLUTN is currently lower than what is desirable, coming in at 30.51%. Regardless of NES's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, NES's net profit margin of -103.82% significantly underperformed when compared to the industry average.
- NES's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 85.90%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- You can view the full analysis from the report here: NES Ratings Report