Tuesday, November 9, 2010

A Small Time Trash Company With A Big Time Yield

There is big money in the garbage industry and US Ecology is proof of it. US Ecology is a small cap company that has been in business nearly 60 years disposing of radioactive and hazardous waste. The company that was formerly known as American Ecology has a market cap of just $300 million dollars. US Ecology is headquartered in Idaho and has been around since 1952.

The company participates in the very competitive waste management industry with large players Waste Management and Republic Services. US Ecology has successfully carved out a niche for itself by hauling away hazardous materials like nuclear waste that other companies will not. The company may be small but its margins are superior to larger industry competitors.
 

The company's shares are dropping to levels that may make the company a decent value play. The stock appears to have bottomed out last month at $13 a share and are now trading at $16. This was due to the last quarterly report in which the company saw a significant drop off in earnings with revenue dropping 30.8% year over year and earnings declining 5.4%.

The company believes that growth is full steam ahead after negative earnings growth last year. Earnings declined roughly 6% over the past five years. US Ecology is expecting earnings to grow at 11% over the next few years. Shares are expensive trading at 27 times this year’s earnings and 19 times next year’s earnings.

US Ecology has a pristine balance sheet for a small cap stock. The company has over $30 million dollars in cash and just $12 thousand dollars in debt. The trash company generates over $32 million dollars in free cash flow as well. Operating margins are still high at almost 20% and profit margin comes in at 12%.

The company is currently offering up a great dividend yield. US Ecology has a dividend yield of 4.3% which is higher than its historical 5 year yield of 3.6%. The current payout is temporarily high at 120% but should return to normal next year. The company has enough cash from retained earnings to fund the dividend for the current year.

The current dividend payout should put the stock on the radar of dividend investors. Value investors should consider picking up shares around $13 a share.



This article was written by [Buy Like Buffett]. If you enjoyed this article, please consider subscribing to my feed at [RSS].

0 comments:

Post a Comment

Recent Posts From DIV-Net Members