Covanta Announces Cost Saving Plans - Analyst Blog

Waste and energy services provider, Covanta Holding Corporation CVA, announced several cost saving initiatives besides its intention to increase the quarterly cash dividend to 25 cents from 18 cents per share. The board of directors of Covanta is expected to authorize the payment of a hiked dividend from the third quarter of 2014.

Covanta expects to achieve cost savings by improving its process efficiency and cutting expenses across its business. For process efficiency the company needs to improve upon the competence of its workforce along with upgrading its existing IT systems.

The company expects to increase its Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) by approximately $30 million in 2015 from these cost saving measures. Besides enjoying a higher EBITDA in 2015, cost discipline will help the company to improve its profitability. The profit could be ploughed back for further expansion of its operations and be used for incremental dividend payments.  

A steady dividend payout policy reflects Covanta Holding's healthy financial position and balanced capital deployment approach. The company ended the first quarter 2014 with cash flow from operating activities of $102 million, up 59.4% from the year-ago level.  For 2014, the company expects free cash flow in the $170 million to $210 million range.

With increasing need to develop renewable energy in response to stringent environmental regulations, Covanta Holding is looking forward to the success of its recycling and energy recovery processes. The company delivered better-than-expected results on both lines in the first quarter 2014. Covanta expects earnings per share to come in between 35 cents and 50 cents for the year while the Zacks Consensus Estimate is pegged at 43 cents.

Covanta Holding has a Zacks Rank #1 (Strong Buy). Other well-placed players in the same space include US Ecology, Inc. ECOL, First Solar, Inc. FSLR and U.S. Geothermal Inc. HTM. While US Ecology holds a Zacks Rank #1 (Strong Buy), U.S. Geothermal and First Solar carry a Zacks Rank #2 (Buy).