Heritage-Crystal Clean, Inc. (HCCI): This Stock Is Not Justified Trading At A Premium To Its Peer

Peer comparison

Heritage-Crystal Clean, Inc. (NASDAQ:HCCI)’s peers include Clean Harbors and Progressive Waste Solutions.

Clean Harbors acquired 100% of the common shares of Safety-Kleen in December 2012, which is Safety-Kleen Heritage-Crystal Clean’s largest competitor in areas such as parts cleaning and oil re-refining. Most of the key management personnel at Heritage-Crystal Clean, Inc. (NASDAQ:HCCI) have previously worked at Safety-Kleen, including Heritage-Crystal Clean’s CEO and President Joseph Chalhoub, who was formerly President of Safety-Kleen, bringing with them valuable experience to Heritage-Crystal Clean, Inc. (NASDAQ:HCCI).

Progressive Waste Solutions provides non-hazardous solid waste collection and disposal services to both corporate and residential customers in United States and Canada. It is taking advantage of the fragmented nature of the solid waste services industry by expanding through acquisitions; it completed 19 and 14 acquisitions in 2012 and 2011 respectively.

Based on Yahoo Finance data, Heritage-Crystal Clean is trading at a premium over its peers with a trailing twelve months EV/EBITDA of 18. Comparatively, the other stocks in the peer group are valued by the market at 8-12 times EV/EBITDA. Despite having the strongest balance sheet of the four stocks with a low gearing of 14%, it also delivered the lowest trailing twelve months ROA of 1.7%. In comparison, Clean Harbors, which owns Heritage-Crystal Clean’s largest competitor, Safety-Kleen, achieved a ROA of 4.4% and trades at 12 times EV/EBITDA.

Clean Harbors also delivered a net profit margin of 5.9% for the last twelve months, compared with 0.9% for Heritage-Crystal Clean, reflective of the disparity in size and market share between the two. Safety-Kleen is estimated to have more than half the market share of the parts cleaning and used oil re-refining markets, according to Clean Harbors’ recent 1Q2013 earnings conference call.

Conclusion

Investors should consider invest in a cheaper and larger waste services player such as Clean Harbors, as an alternative to the more expensive Heritage Crystal-Clean.

The article This Stock Is Not Justified Trading At A Premium To Its Peer originally appeared on Fool.com.

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