Chicago, IL – September 18, 2024 – Today, Zacks Equity Research discusses Tetra Tech, Inc. TTEK, Casella Waste Systems, Inc. CWST, Atmus Filtration Technologies Inc. ATMU and CECO Environmental Corp. CECO.
The Zacks Pollution Control industry is poised for growth from increasing demand for air pollution control products due to rising greenhouse gas emissions and growing public awareness of health-related risks. Stringent regulations and emission standards enacted by countries globally should continue boosting the demand for industry players.
However, the increased adoption of renewable sources of energy, with the rising preference for alternative fuels, has marred the outlook of the industry. Tetra Tech, Inc., Casella Waste Systems, Inc., Atmus Filtration Technologies Inc. and CECO Environmental Corp. are likely to capitalize on the opportunities.
About the Industry
The Zacks Pollution Control industry comprises companies engaged in providing innovative filtration systems, replacement parts, solutions for managing medical wastes, energy recovery devices and other products. These products are used in commercial, automotive repair, industrial, home healthcare, retail, construction, pharmaceutical and hospitality end markets.
A few industry participants offer solutions to deal with industrial waste and commercial chemical products and technologies to tackle air pollution. One of the companies also delivers services related to infrastructure, water, resource management, energy, etc., to government and commercial clients. These companies are enhancing investments in developing innovative technologies, improving customer and employee experience and enhancing supply-chain modernization programs.
Major Trends Shaping the Future of the Pollution Control Industry
Solid Demand for Air Pollution Control Products: Rapid urbanization and the consequent rise in greenhouse gas emissions from the industrial sector have been driving demand for air quality control systems. Growing public awareness to mitigate the health hazards of air pollution is a key growth driver of the pollution control market. The expansion of infrastructure projects in developing countries is also boosting the demand for pollution abatement equipment and technologies.
Stringent Government Regulations: Strict emission standards and related laws implemented by countries worldwide to tackle the depletion of the ozone layer and the ecosystem should continue boosting the demand for pollution-control equipment. Europe has some of the strictest pollution control laws in place. Increased usage of artificial intelligence (AI) and the Internet of Things (IoT) in industrial processes has been enabling several industry players to monitor and identify the source of air pollution in real-time, driving the demand for pollution abatement technologies. Also, strong demand for medical, pharmaceutical and hazardous waste management services is boosting the prospects of some industry participants.
Addition of Oil Rigs: The Russia-Ukraine conflict has led U.S. shale drillers to consider adding more rigs. This implies the possibility of more oil production, spurring demand for pollution control equipment and services. The growing need for engineering and assessment services in disaster response is also creating a favorable market environment for a few industry players.
Emergence of Alternative Sources of Energy: The growing preference for renewable energy sources for power generation to reduce dependency on coal in the United States and other developed countries across the world is restraining the demand for industrial emission-abatement products and technologies. Several factors, including supportive government policies related to renewable energy, higher renewable investments, a reduction in overall costs of generating renewable electricity and the rapid adoption of electric vehicles (EV), have made the prospects of the industry players gloomy.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Pollution Control industry, housed within the broader Zacks Industrial Products sector, currently carries a Zacks Industry Rank #89. This rank places it in the top 35% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bullish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of the positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are keeping more faith in this group's earnings growth potential. The industry’s earnings estimates for 2024 have increased 2.6% since the end of September 2023.
Given the upbeat near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it is worth looking at the industry’s shareholder returns and current valuation first.
Industry Outperforms Sector & S&P 500
Over the past year, the Zacks Pollution Control industry has outperformed the Zacks S&P 500 composite index and the broader Industrial Products sector.
Over this period, the industry has appreciated 29% compared with the broader sector and the S&P 500 Index’s rise of 16.8% and 25.8%, respectively.
Industry's Current Valuation
Based on the forward P/E (F12M), a commonly used multiple for valuing pollution control stocks, the industry is currently trading at 26.50X compared with the S&P 500’s 21.45X. It is also above the sector’s P/E (F12M) of 19.05X.
In the past five years, the industry has traded as high as 33.69X, as low as 20.35X and at the median of 26.38X.
4 Pollution Control Stocks to Keep a Close Eye On
Tetra Tech: Headquartered in Pasadena, CA, the company is a leading provider of consulting, engineering, program management and technical services. It serves clients by providing cost-effective and innovative solutions for dealing with the fundamental needs for water, environmental and alternative energy services. Tetra Tech is benefiting from its focus on providing high-end consulting, design and engineering services. The U.S. government’s priorities on infrastructure development and its focus on climate change, water and environment are likely to benefit TTEK in the quarters ahead.
This Zacks Rank #2 (Buy) company’s earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average beat being 9.5%. You can see the complete list of today’s Zacks #1 Rank stocks here. The Zacks Consensus Estimate for TTEK’s fiscal 2024 (ending September 2024) earnings has been revised upward by 0.8% in the past 60 days. The stock has rallied 45% in the past year.
Atmus Filtration: Headquartered in Nashville, TN, the company is a leading designer and producer of filtration and media solutions. The company’s leading position in the industrial filtration market, effective pricing actions and sound capital allocation strategy are expected to support its growth. Its global footprint, comprehensive offering of premium products and technology leadership should bolster growth. ATMU currently carries a Zacks Rank #2.
Atmus Filtration’s earnings surpassed the Zacks Consensus Estimate in each of the preceding four quarters, the average beat being 13.4%. The Zacks Consensus Estimate for ATMU’s 2024 earnings has been revised upward by 3.1% in the past 60 days. Shares of the company have rallied 57.9% in the past year.
Here, we have also discussed a couple of additional stocks that carry strong fundamentals and have the potential to deliver sustained value to investors over the long term.
CECO Environmental: Headquartered in Dallas, TX, this is an environmentally focused industrial company that provides critical solutions in industrial air quality, industrial water treatment and energy transition solutions worldwide. Increased demand for duct fabrication and installation services is supporting the company’s growth. Its strategic acquisitions to expand capabilities in the industrial air and industrial water platforms should bolster growth. CECO currently carries a Zacks Rank #3 (Hold).
CECO Environmental’s earnings surpassed the Zacks Consensus Estimate thrice in the preceding four quarters while meeting estimates once. The average beat was 10.4%. The consensus estimate for its 2024 earnings has remained steady in the past 60 days. Shares of the company have surged 76.1% in the past year.
Casella Waste: Based in Rutland, VT, Casella Waste operates as a vertically integrated solid waste services company in the United States, offering comprehensive solutions, including collection, recycling and disposal of non-hazardous waste. It serves a diverse range of customers, from residential to industrial, and markets various recyclable materials. Increased demand for solid waste services driven by favorable collection and disposal pricing bodes well for the company. Acquisitions made over time have been aiding CWST through the expansion of its product lines and market presence.
Casella Waste’s earnings surpassed the Zacks Consensus Estimate in two of the preceding four quarters while missing the mark in the other two. The average beat was 6.7%. The Zacks Rank #3 company’s shares have rallied 30.2% in the past year.
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