Republic Services, Inc. (RSG), Veolia Environnement SA (ADR) (VE): Making Profits From Trash

For every action, there is a reaction, and every invention creates garbage. Ever wondered how trash is dealt with? Here are three companies engaged in waste management and recycling. Two are based out of the US. One is limited to the domestic market, Republic Services, Inc. (NYSE:RSG), and another has an international profile, Covanta Holding Corp (NYSE:CVA). The third is based out of France and is present in the international market, Veolia Environnement SA (ADR) (NYSE:VE). The question remains, are they making or wasting profits?

Short-term attention is directed to customer diversification. Management sees a long-term growing risk to the model if contracts are limited to government agencies. In line with that, future contracts will look to develop partnerships in the industrial sector as a consultant and project developer. Contracts with government agencies, however, continue, and $400 million for a desalination plant was signed recently in Saudi Arabia.

Financially, Veolia Environnement SA (ADR) (NYSE:VE) is in need of a push. Revenues and free cash flow have entered a small downtrend during the last decade. On the good side, debt has been reduced and total cash flow increased, while net income remained stable in the same period. Finally, operating income stayed on the positive but is well below the industry average.

Veolia Environnement SA (ADR) (NYSE:VE) is trading around the midpoint of its 52-week range, at $11.17, and is expected to drop another dollar. Yield stands at 6.95% on a dividend of $0.75. In all, the stock is well-priced and I recommend buying. Projects in St. Louis and Saudi Arabia will give the company a short-term push, and a business-model focus on private partnerships will provide the long-term outlook for lasting success.

Garbage collection and waste-to-energy

Covanta Holding Corp (NYSE:CVA) is the world’s largest waste management company. With operations in North America and Europe, the business turned toward the generation of clean energy – so clean in fact, the firm has been the recipient for many awards. Shareholders were also rewarded through the last decade.

The short term is occupied by temporary contracts that amount to 25% of total revenue. On the other side, 75% of future revenue is guaranteed by long-term contracts. Having mostly exhausted domestic opportunities, the company opened activities to China and Italy. Further projects in England, Scotland, and Ireland may be delayed due to economic constraints, but government regulation prefers incinerators to landfills.