Filed Under: ,
Tickers in this Article: CVA, WMI
Covanta (NYSE:CVA) is hoping to profit from the scramble for renewable energy by converting trash that would otherwise sit in landfills into electricity. Investors building their alternative energy portfolio should consider adding energy-from-waste (EFW) players since future legislation and international acceptance could put companies like Covanta and Waste Management (NYSE:WMI) at the top of the heap.

Strong Second Quarter from Covanta
Covanta is more of a pure play in the EFW space with operations setup in the Americas, Europe and Asia. Covanta's revenue for the second quarter ending June 30 was up 19% from the same period a year ago to $423 million. For the first six months of the year, Covanta's revenue was up more than 18% to $812 million. The increase was led by its electricity and steam sales. Since the beginning of the year, Covanta stock has fallen into negative territory, but over the past year its stock is up more than 23%.

Waste Management Hobbled by Slowdown
Waste Management generates most of its revenue from trash collections and landfill operations, but it also has waste-to-energy technology. Its primary renewable focus has been on transforming methane gas emitted from landfills into energy. Waste Management reported a 3.9% increase in revenue for the second quarter over the prior year to $3.5 billion. Higher fuels costs and increased competition have been difficult challenges for Waste Management to overcome. A slow down in construction and the completion of landfill operations contracts with municipalities has also hindered revenue growth in its waste-to-energy business for the first half of the year.

Insider Selling and Pending Legislation
Real Estate entrepreneur Samuel Zell and a related trust sold 7 million shares of Covanta at the end of July. Although it's a large transaction public records show that Zell still owns more than 19 million shares and continues to be a Covanta board director. (To learn more, read Insider Selling Isn't Always A Bad Sign.)

Tax credits for producing energy from municipal solid waste have been passed by Congress, but a decision from the Senate is pending and may close before the end of the year. If statewide mandates are put into place with specific language detailing the amount of waste that must be converted to energy, these players could be in a great position to benefit.

Final Thoughts
With each bag of trash investors throw away, they should consider that one day an EFW player may have a contract with their municipality to turn this waste into the energy necessary to power their home. Trash is proving not only to be another man's treasure, but also another man's power.

To learn how innovations in energy and consumption relate to investing, read For Companies, Green Is The New Black and our Green Investing Feature.

comments powered by Disqus

Trading Center