Covanta Holding Upgraded to Strong Buy - Analyst Blog

On May 20, Zacks Investment Research upgraded Covanta Holding Corporation CVA to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Covanta Holding registered better-than-expected results in the first quarter as its loss of 3 cents per share was much narrower than the Zacks Consensus Estimate of a loss of 14 cents, and 84.2% below the year-ago loss. The company registered a positive surprise in 3 out of the last 4 quarters with an average beat of 54.50%.

The company also surpassed the Zacks Consensus Estimate for the top line by 4.7% in the reported quarter. Covanta Holding's impressive quarterly performance was driven by higher energy pricing at both energy-from-waste and biomass facilities plus a favorable outcome from the Camden acquisition in 2013.

The company's constant investment in organic growth and extension of mutually beneficial client contracts will allow it to keep its stable position in the waste management services industry.

In Apr 2014, Covanta Holding has entered into an agreement with Western Massachusetts municipalities to provide a package of sustainable waste management services. The nine municipalities will send approximately 25K tons of municipal solid waste to the Covanta Springfield Energy-from-Waste facility. This new partnership will start work from July this year.

The company has plans to invest $125 million to $175 million for 2014 to further strengthen its existing operations. Moreover, the decision to refinance its existing debts will lower the interest burden of the company, thereby improving margins. Management has also increased its quarterly dividend by 9% to 18 cents per share on the back of its cash generation ability.  

Other Stocks to Consider

Apart from Covanta Holding, Calpine Corp. CPN, CPFL Energia S.A. CPL and Korea Electric Power Corp. KEP carry a Zacks Rank #1 and are worth considering.

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