Zacks’ pollution control industry has benefited from increasing pollution-related health concerns, efforts to adhere to national and international standards related to pollution from industries, and urbanization in several countries. Healthy shale drilling activities and increased economic activity should prove beneficial to the industry. Industry players love Donaldson Company, Inc. (ICD – Free report), Tetra Tech, Inc. (TTEK – Free report), Energy recovery, Inc. (ERII – Free report) and Heritage-Crystal Clean, Inc. (HCCI – Free Report) are ready to capitalize on the opportunities. However, the growing preference for alternative fuels and the high costs associated with frequent product upgrades have marred the prospects of industry players.
About the industry
Zacks Pollution Control industry includes companies that provide innovative filtration systems, replacement parts, medical waste management solutions, energy harvesting devices and other products. These products are primarily used in the commercial, automotive repair, industrial, home care, retail, construction, pharmaceutical and hotel end markets. A few industry participants are proposing solutions for dealing with industrial wastes and commercial chemicals as well as technologies to combat air pollution. One of the companies also provides services related to infrastructure, water, resource management, energy, etc. to government and commercial customers. These companies are increasing their investments in the development of innovative technologies and the improvement of the customer and employee experience as well as in supply chain modernization programs.
Trends shaping the future of the pollution control industry
Strict government regulations: Industry participants have witnessed a high demand for pollution abatement technologies and services in manufacturing plants, due to their adherence to industrial regulatory compliance. For example, industry players continue to successfully commercialize pollution abatement technologies in several European countries, thanks to the European Union’s Industrial Emissions Directive in BAT reference documents. Rising global demand for medical and pharmaceutical waste management services amid the pandemic is also strengthening the prospects for some of the industry participants engaged in providing these services.
Industrialization in developing countries: The increase in environmental management programs coupled with greater accumulation of infrastructure and rapid urbanization in several developing countries is driving the demand for pollution control equipment. Few industry players, including Tetra Tech, have benefited from the increased need for consulting and engineering services focused on water, the environment, sustainable infrastructure, energy and land management. resources. The need for engineering and appraisal services in disaster-related work also helps create a strong demand environment for industry participants.
Existing woes: The increasing use of alternative fuels for power generation to reduce reliance on coal, especially in the United States and developed countries in Europe, is dampening demand for pollution control products and services. The requirement to invest frequently to improve products and services, following the guidelines of pollution control boards in several countries, has often hurt the margins and profitability of industry participants. The shortage of skilled workers in the United States is also a continuing concern.
Zacks Industry Rankings Shows Strong Outlook
The Zacks Pollution Control Industry is a group of 11 stocks within the larger Zacks Industrials sector. The industry currently holds a Zacks Industry Rank # 108, which places it in the top 43% of over 250 Zacks industries.
The group’s Zacks Industry Rank, which is essentially the average of the Zacks Rank of all member stocks, indicates a near-term bullish outlook. Our research shows that the top 50% of industries ranked by Zacks outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of industries ranked by Zacks is the result of the positive earnings outlook for all of the constituent companies. Looking at the revisions to the overall earnings estimates, it appears that analysts remain more confident in the earnings growth potential of this group. Industry profit estimates for 2021 have risen 4.1% over the past year.
Before we discuss a few stocks in the industry, it’s worth taking a look at the industry’s shareholder returns and its current valuation.
Industry underperforms the S&P 500 and the sector
Zacks Pollution Control’s industry has underperformed both the S&P 500 and its industry over the past year. Industry stocks collectively gained 34.4%, while the S&P 500 rose 37.1%. Zacks’ industrials business grew 35.2% over the same period.
One-year price performance
Pollution Control Industry Assessment
The price-to-earnings (P / E) ratio is commonly used to value pollution control stocks.
The industry currently has a 12 month futures P / E of 37.58X against the 25X of the S&P 500. It is also trading above the 12 month futures P / E of the sector of 24.82X.
Over the past five years, the industry has traded as low as 38.14X and as low as 20.41X, with a median of 26.14X, as shown in the chart below.
Pollution Control Industry Assessment Against the S&P 500
Assessment of the pollution control industry against the sector
4 antipollution actions to monitor
Below, we have discussed four industry stocks, which appear to be well positioned to capitalize on the opportunities present in the industry.
Donaldson: Headquartered in Bloomington, MN, the company is engaged in the manufacture and sale of filtration systems and replacement parts throughout the world. The company appears well positioned to benefit from the strength of its on-road, off-road and aftermarket business, strong product offerings, a strong order backlog and a diversified business structure over the coming quarters. For fiscal 2021 (ended July 2021, results are expected), the company expects sales to grow 9-11% year-over-year, from the 5-8% previously mentioned. However, the challenges posed by the pandemic to its businesses, especially commercial aerospace, are cause for concern.
Zacks Rank # 3 (Hold) shares have gained 30.4% in the past year. It has beaten earnings estimates in each of the past four quarters, with earnings surprise averaging 9.02%. The company’s earnings estimates rose 0.4% for fiscal 2021, and the same for fiscal 2022 (ending July 2022) rose 1.5% in the past 60 days.
Price and surprise: DCI
Tetra Tech: The Pasadena, California-based company is a leading provider of consulting, construction management, engineering, program management and technical services. Zacks Rank # 3 is expected to benefit from the strength of its business. In addition, its strong backlog of $ 3,249.9 million at the end of the third quarter of fiscal 2021 (ended June 27, 2021) will likely be beneficial. However, the company faced high costs and expenses, which could affect its margins and profitability.
The company’s shares have jumped 46.5% in the past year. It has beaten earnings estimates in each of the past four quarters. It delivered a surprise profit over the last four quarters of 12.32%, on average. While Zacks’ consensus estimate for the company’s bottom line has remained stable for fiscal 2021 (ending September 2021), it indicates 12% year-over-year growth. The consensus estimate for fiscal 2022 (ending September 2022) has increased 0.3% in the past 60 days.
Price and surprise: TTEK
Energy recovery: Based in San Leandro, California, this company is one of the world’s leading developers and manufacturers of high efficiency energy harvesting devices used in the water desalination industry. It will benefit from the strength of its desalination business, a solid pipeline of projects as well as its focus on new product innovations in the coming quarters. Zacks Rank # 2 (Buy) company’s focus on manufacturing efficiency, cost discipline and mix standardization is expected to drive profitability and margins.
The company’s shares have gained 133.1% in the past year. It has beaten earnings estimates in each of the past four quarters, with earnings surprise averaging 150.83%. The company’s earnings estimates rose 10% for 2021, while the same for 2022 has remained stable over the past 60 days.
Prize and surprise: ERII
Heritage-Crystal Clean: Based in Elgin, Ill., The company provides parts cleaning, hazardous and non-hazardous waste management services to small and mid-sized customers in North America. The company is expected to benefit from the strength of its container waste, antifreeze and vacuum service businesses. In addition, the recovery of the final petroleum refining market is likely to be beneficial. However, the challenges related to the pandemic on its businesses remain of concern.
Zacks Rank # 3 shares have risen 80% in the past year. It has beaten earnings estimates in each of the past four quarters. It delivered a surprise earnings of 108.81% on average over the past four quarters. The company’s earnings estimates rose 34.9% for 2021, while those for 2022 have held steady for the past 60 days.
Prize and surprise: HCCI