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Covanta 1Q18 results +3

10:01 27-Apr-18


The Covanta conference call has just concluded.  The executive summary is that everything is chugging along quite well, which was anticipated.  Some analysts questioned why guidance was not raised given the good results, and the general answer was that it's still early in the year.

As projected, metals were particularly strong, with ferrous up 12% and non-ferrous improved by over 20%.  HMS averaged $321/ton, and is now at $353 now, and management is using $300 for its guidance.  As I previewed, the impact of tariffs is generally positive, but there is some concern about retaliation, which also figures into the conservative guidance.  Covanta sells most metals in the U.S., but some non-ferrous goes to China.  Other markets are available, and the future looks bright.  The Fairless Hills (not Fairfax as referenced below) expansion should step up early next year.

Tariffs are also increasing domestic waste levels, which contributed to 2% same-store growth in Covanta's facilities.  That should ramp to 3% over the course of the year.  Profiled waste, including drug take back and regulated medical waste, should see double-digit growth.  The second Marine Transfer Station in NYC is proceeding, but Rookery, in the U.K. is facing a procedural lawsuit that looks like it may delay the start of construction by anywhere from a few weeks to a few months.

None of this should detract meaningfully from excellent operational results for the quarter.  The business is still on track for $250M annual free cash flow by mid-next decade.  That should gradually bring the dividend to about 40 cents per quarter and the stock price to the mid-twenties.  All of this is exclusive of new partnerships, which I do expect to materialize over time.  Just as I see AES as more of an energy technology company than a utility, I think of Covanta as a technology provider in environmental waste and energy solutions.  Encores of the GIG deal should increasingly substantiate that viewpoint.

On 04/26/2018 04:50 PM, Esekla wrote:

Covanta has reported earnings for its first quarter:

  • a loss of 9 cents beats by 10 cents
  • on revenue of $458M, which beats by $28M

Record performance at Fairfax is indicative of the metals strength I was looking for.  Management also affirmed its full-year guidance, but some sites are reporting the EPS number as a big miss.  The market seems to have been paying more attention to CVA than usual, though, and shares are up over 3% after hours.  I don't know if they will continue rising immediately or not, but it's looking like we are in the clear on the dividend.  That should clear the way for substantial gains as the company progresses on new projects and deals.  The conference call is at 8:30 tomorrow morning.  More after that.