Covanta and Hannon Armstrong Earnings

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by Tom Konrad, Ph.D. CFA

Two more earnings notes I shared with my Patreon followers on February 18th.

Covanta Holdings (CVA)Covant 4Q 20 earnings

Leading waste-to-energy firm Covanta Holdings (CVA) announced 2020 earnings today.  There will be a conference call tomorrow morning, but here is my high-level impression:

The company managed well through Covid and ended the year within it’s original pre-covid guidance.  Metals and energy prices, as well as increased maintenance capital expenditures were a drag on results, but  prices are improving and capital expenditures will fall in 2021.

The company is conducting a strategic review which will likely result in the sale of some underperforming assets.  I expect any money raised this way will go to pay down debt, as will retained cash flow from its dividend reduction last year.  

As I wrote in April 2020, while covid was the excuse for the dividend reduction, the underlying reason was that the company’s debt and dividend were too high. That opinion has not changed, so readers should not expect to see a dividend increase as a result of the ongoing strategic review, which management expects to conclude by the middle of the year.  

Rather, I expect the dividend to be maintained at its current level while the company strengthens its balance sheet and invests in growth projects.  This should be  good for the company’s long term prospects, but I don’t expect anything spectacular to happen to the share price in the short to medium term.

Hannon Armstrong (HASI)

Sustainable infrastructure financier Hannon Armstrong (HASI) was down on earnings today.    I did not see anything bad in the earnings report, so I think the cause is just that the stock is overvalued, and the new guidance of 7-10% annual earnings growth does not justify its current lofty valuation.

Maybe the stock will decline far enough that I want to buy it again… not likely without a major market decline, which is probably not something I should “hope” for, but it would definitely be a silver lining.

Love the company, hate the price.

DISCLOSURE: Long CVA, HASI

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

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