Overlooked Cleaners Have Tidy Yield

03/24/2011 1:06 pm EST

Focus: STOCKS

Ian Wyatt

Publisher & Chief Investment Strategist, Wyatt Investment Research

US Ecology has built a very healthy business by disposing of low-grade hazardous waste, writes Ian Wyatt of Small Cap Investor PRO .

The tragedy in Japan points to one of the hazards of living in the nuclear age: dangerous byproducts from energy production, such as radiation. But it's not just a reactor meltdown in Japan that needs to be monitored—there are also many types of routine waste generated today in the US that need to be properly disposed.

One under-the-radar company is doing just that, while paying a 4.2% dividend to investors. This is a respectable yield for a company with a $314 million market cap.

US Ecology (ECOL) helps America dispose of everything from hazardous waste—including the low-level radiation materials shed by health care and other industries—to everyday, non-hazardous materials that need a final resting place.

Getting rid of America's hazardous waste is a $5 billion-a-year market, and US Ecology controls about 15% of it. It's a highly regulated and very restricted business, requiring many different permits and specialized equipment—not to mention a highly trained staff following precise procedures.

Needless to say, there aren't a lot of newcomers treading on this company's turf.

The company can claim a track record of success back to the dawn of the nuclear age. It has provided radioactive-waste services since 1952, and other hazardous-waste services since 1968.

In the western United States, the company has a Richland, Washington facility that helps handle nuclear waste from 11 states. Since 2010, it has also owned a Canadian hazardous waste site in Quebec.

It has quite a customer base, including BP (BP), ConocoPhillips (COP), and other oil companies, as well as General Electric (GE) and Honeywell (HON). Other customers include the federal government, the US Army Corps of Engineers, the Environmental Protection Agency and the Army.

The company's share price was up 6.7% in 2010, but the stock has struggled to add to that this year, given recent release of a cautious outlook for 2011. Shares were down less than 1% year-to-date in recent action.

US Ecology is often overlooked by investors in favor of competitors like Waste Management (WM), a $17 billion enterprise. But throughout the economic downturn, US Ecology was a dependable producer of profits. And its dividend yield remains better than Waste Management’s 3.7%.

In 2010, net income was $12.6 million, or $0.69 per share, compared with $14 million, or $0.77, in 2009. However, included in 2010 results was a $0.13 per share expense related to the $77.3 million all-stock acquisition of Marsulex's (Toronto: MLX) Canadian operations.

Also, in 2009 earnings per share benefited from $0.25 in insurance settlements, making the comparison that much cloudier.

The company's earnings outlook calls for $0.75 to $0.85 per share in 2011, with the consensus estimate of $0.82 falling near the middle of that range. Company officials are expecting growth of 9% to 23% over 2011, as the economy improves.

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