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Covanta & MagnaChip 2Q20 results +3

As usual, there was a lot of good color available in the Covanta conference call.  The executive summary is that, although management sees the core waste business recovering, it remains challenged and is expected to remain below previous volumes for the remainder of the year.  See further detail in the breakdown below.  This is being mitigated by cost cutting and good management, but the low hanging fruit has already been picked there.  Maintenance costs will increase for the remainder of the year, and management acknowledges that it could see negative free cash flow in the second half.  Here are the details by segment:
In summary, I continue to see CVA as overpriced, despite the stable, well-run core business.  Management has stabilized debt, but is not providing guidance.  The market is taking this report well, but it's hard for me to see how this isn't as good as it gets for Covanta in near term.   I'll add that Europe just reported its worst contraction ever, and big oil companies are reporting record losses.  Although Covanta is, at its core, the most stable and reliable of businesses, it is still correlated to local economies.  That's not a good thing while the pandemic lasts, and the explosion of public debts will still be a drag even afterward.

On 7/30/20 5:02 PM, Esekla wrote:
Covanta has published its second quarter results:
  • a loss of 10 cents per share beats by 9 cents
  • from $454M of revenue, which beats by $3M

It looks like the core business is recovering, but still down from normal levels.  I also had hoped for a little better performance from metal sales.  CVA is up over 5% in response, but I still see shares as overvalued for the short term.  The conference call is at 8:30am tomorrow morning, and I will certainly write more after that.

In the meantime, I'll also document MagnaChip's results:

  • 13 cents of EPS beats by 6 cents
  • from $118.8M of revenue, which is in-line
  • guides 3Q20 revenue to $121+/-3M which misses by $8M
The real question here is what MagnaChip does next.  The new board member could indicate future M&A, but I see shares as fairly valued right now.  The conference call begins shortly, but I will only write further if there is some surprise.