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Clean Harbors' Safety-Kleen Hikes Pricing to Boost Margins

Waste management services provider Clean Harbors, Inc. CLH recently unveiled a slew of measures to augment its profitability amid a challenging macroeconomic environment. These include an upward revision of prices for the collection of used engine and industrial oils by its subsidiary, Safety-Kleen, and a hike in its service stop-fee for its stop-fee program.

With over four decades of experience, Safety-Kleen is reportedly the largest provider of used oil re-refining and recycling, and parts cleaning services in North America. It offers a comprehensive set of services to conserve natural resources while reducing customers' environmental liability, thereby reducing costs and improving return on investments through the sale of recovered products.

In order to mitigate the high operating risks due to volatility in the crude oil markets and associated decline in fuel prices, Safety-Kleen decided to increase the used motor oil disposal pricing rates for its clients. Effective immediately, the restructured pricing rates are applicable to all customers across the U.S. and Canada and are likely to remain so until fuel prices improve significantly. Safety-Kleen has also hiked its stop-fee program to help recoup transportation and labor costs associated with oil collection services, emphasizing on remote service locations.  

Management opined that such steps were absolutely necessary to maintain its profitability without compromising on the reliability and quality of services. The market-driven price adjustments are likely to be revisited by the company to avoid further deterioration of its existing spread.

Clean Harbors has underperformed the Zacks categorized Waste Removal Services industry with an average year-to-date decline of 0.7% as against a gain of 8.4% for the latter. Volatility in fuel prices and new policies are rapidly transforming the American energy sector, while escalating tensions in the Middle East are clouding the global oil picture. The company’s exploration, drilling activity and production are largely dependent upon the operation of oil rigs and future price uncertainties that have resulted in lower activity levels, impacting the business' results.

Clean Harbors currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader industry include NV5 Global, Inc. NVEE, Stericycle, Inc. SRCL and Stantec Inc. STN, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.  

NV5 Global has a long-term earnings growth expectation of 20%. It topped earnings estimates twice in the trailing four quarters with a positive surprise of 1.8%.

Stericycle has a long-term earnings growth expectation of 9.1%. It topped estimates thrice in the trailing four quarters with an average positive earnings surprise of 4.4%.

Stantec is trading at a forward P/E of 17.66x.

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