Stifel: The Market Is Undervaluing Charah Solutions

The market is pricing in a secular decline in coal-fired and nuclear power generation, but the decline is occurring at a slower pace than investors realize — a bullish signal for Charah Solutions Inc CHRA, according to Stifel. 

The Analyst

Stifel's Michael Hoffman initiated coverage of Charah Solutions with a Buy rating and $15 price target.

The Thesis

In April 2018, 53 percent of the electric power in the U.S. was produced with coal and nuclear sources, but the U.S. Energy Information Administration expects that figure to drop to 43 percent in 10 years, Hoffman said in a Monday note. (See the analyst's track record here.) 

Despite the decline, Hoffman is unconcerned about the size of the market and expects the spending on nuclear outages and coal ash management to reach $50 to $60 billion and $30 to $45 billion, respectively, in the same time frame. 

Charah Solutions should capture a fair share of this market because it has a clear competitive advantage, the analyst said. The company is the only coal ash service company that covers three potential segments: day-to-day coal combustion residuals generation management, CCR byproduct sales and remediation of CCR ponds, Hoffman said. It has been doing this work for more than 20 years and has 30 years of experience in providing critical maintenance services to the nuclear power industry, with an unrivaled safety and compliance record, he said. 

Hoffman forecast fiscal 2018 free cash flow of negative $42.2 million, a number he said should improve to a positive $1.8 million in fiscal 2019 and $14.1 million 2020.  

Price Action

Charah Solutions shares were down 2.18 percent at $11.21 at the time of publication Monday. 

Related Links:

Benzinga's Top Upgrades, Downgrades For July 9, 2018

Charah Solutions, Inc. Announces Pricing of Initial Public Offering