Covanta (CVA) Is Today's Dead Cat Bounce Stock

Trade-Ideas LLC identified Covanta ( CVA) as a "dead cat bounce" (down big yesterday but up big today) candidate. In addition to specific proprietary factors, Trade-Ideas identified Covanta as such a stock due to the following factors:

  • CVA has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $14.5 million.
  • CVA has traded 2.1 million shares today.
  • CVA is up 3.6% today.
  • CVA was down 5.6% yesterday.

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More details on CVA:

Covanta Holding Corporation provides waste and energy services to municipal entities primarily worldwide. It owns and operates infrastructure for the conversion of waste to energy, as well as engages in other waste disposal and renewable energy production businesses. The stock currently has a dividend yield of 7.5%. Currently there are 7 analysts that rate Covanta a buy, no analysts rate it a sell, and 2 rate it a hold.

The average volume for Covanta has been 1.3 million shares per day over the past 30 days. Covanta has a market cap of $1.8 billion and is part of the industrial goods sector and materials & construction industry. The stock has a beta of 0.38 and a short float of 9.6% with 9.91 days to cover. Shares are down 18.5% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Covanta as a hold. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, good cash flow from operations and impressive record of earnings per share growth. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, poor profit margins and generally higher debt management risk.

Highlights from the ratings report include:
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Commercial Services & Supplies industry. The net income increased by 1640.0% when compared to the same quarter one year prior, rising from -$5.00 million to $77.00 million.
  • Net operating cash flow has increased to $93.00 million or 22.36% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -0.44%.
  • CVA, with its decline in revenue, slightly underperformed the industry average of 0.0%. Since the same quarter one year prior, revenues slightly dropped by 0.7%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • The gross profit margin for COVANTA HOLDING CORP is currently lower than what is desirable, coming in at 31.02%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 17.82% is above that of the industry average.
  • CVA'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 37.67%, 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. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.

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