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Covanta 2Q16 report -3
09:42 27-Jul-16
Covanta's conference call has just concluded and really there is
not all that much to add. The macro environment remains difficult
and I'd expressed some surprise that hadn't affected the stock
more. The apparent reason why we haven't seen declines (before
now) seems to be the 99.6% institutional ownership. Given its
municipally contracted cash flows, CVA is trading like a bond, and
the continued hunger for yield is something I've observed across
the market with institutional investors. This is one of the
primary reasons I don't see eminent market collapse, though
institutional investors can often have even more of a heard
mentality than their retail counterparts. They just look at
different data, the next batch of which will come in the remainder
of the week, with FOMC and jobs reports.
Back to Covanta, the Dublin project is 70% complete. It should
start processing waste going into 2017 and scale to full operation
throughout the year, as already expected. Management spoke of
intentions to replicate the Fairless Hills metal processing in the
south, and other areas. Thy may also expand processing activities
to non-ferrous clean-up. These moves make the macro impact even
more difficult to predict. Management mentioned some combination
of the Producer Price Index and HMS as best gauge for tracking of
its costs and sales, but its far too early to do any
quantification.
Covanta has announced results for its second quarter:
- a loss of 22 cents per share misses by 18 cents
- on revenue of $418M, which beats by $8M
Management also reaffirmed it guidance for the year of Adusted EBITDA of $390-$430M and FCF of $140-$180M. The bottom line was apparently impacted by tax charges, but it may still be taken as a negative. Everything else in the press release seems to be business as usual.
The conference call will be at 8:30AM tomorrow; more after that.