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The investment appeal of the larger companies in the environmental services industry has been enhanced by the merger activity among the leaders of three industry segments. However, internal growth among landfill operations and waste hauling has been limited to less that 5% in the last serveral years and results at water-treatment companies have been mixed. The most appealing stocks in this industry for the next three to five years are those of the dominant companies.

Prospects for internally-generated revenues are lackluster for most companies in the environmental industry, but investors need to be aware of consolidation in three industry sectors. Growth has been modest for landfill operations and waste hauling in the 1990s, and results for water-treatment companies are also mixed. These stocks are attractive for the next three to five years, but changes due to mergers need to be considered by investors.

The planned mergers of several leaders in major environmental industry segments, such as landfill and waste hauling operations, in 1998 is the main trend that investors need to be aware of when making selections. Earnings for some companies may be lackluster in the near future, but should also be increasing for others due to water-treatment services demand. Conservative and speculative investors may both be interested in this industry.

Editor's note: Because the needs of small, independent owners/operators are different than those at large solid waste firms, the authors have provided two points of view to the age-old question: [...]

The acquisition of United Waste Systems Inc by USA Waste Services Inc has created the third largest company in the environmental industry. Improvement in the used newspaper supply/demand situation and corrugated cardboard price rises should also allow some companies to improve earnings, and increased demand for remediation and water-treatment services are positive. Timely stocks in this industry should be the focus for investors.

Brazil is the largest environmental technologies (ET) market in Latin America, totaling an estimated $3.4 billion in 1995. Growth projections for environmental equipment sales range between 5-10 percent per year, [...]

A tabulation of the top 200 US firms which provide international environmental services and products shows each corporation's total revenues and markets for the fiscal year of April 1997. Bechtel Group Inc. of San Francisco, CA, which specializes in nuclear and hazardous waste management, is ranked first with $1,307.3 million. US Filter Corp. of Palm Desert CA, which deals with water quality and wastewater services, is second with $1,300 million. In third place is Foster Wheeler Corp. of Clinton, NJ, which specializes in hazardous waste, wastewater treatment, and solid waste management, with $1,248 million in revenues.

Potential investors in the environmental services industry should examine individual stocks for timely choices. Different segments of the industry are experiencing different conditions, with many of the waste hauling companies hurt by declining profits, and smaller companies in the hazardous waste treatment industry profiting from the rapid consolidation of the industry. Ionics is well positioned out to 2001 in the expanding water purification service segment.

Environmental industry securities have been hurt by weak prices caused by overcapacity at landfills. But the supply/demand differential has begun to narrow, except among hazardous waste companies. The latter are being hurt by the growing use of inexpensive cement kilns. At the opposite extreme, water treatment firms are doing well. The three- to five-year stock potential of the group as a whole is positive.

The diverse environmental services industry offers good investment options in the water treatment and air purification sector but as a whole is not timely. The hazardous waste business suffers from overcapacity, while municipal recycling operations have brought down margins for solid waste disposal firms. Water treatment firms with favorable prospects out to 1997-99 include Air and Water Technologies, Wheelabrator's and Ionics.

The environmental services industry presents a mixed picture to the potential investor. Collectively, the industry's stocks have been falling since 1990. However, long-term prospects are brighter in areas such as waste-to-energy conversion, lead by Wheelabrator Technologies and Ogden Projects. Meanwhile, hazardous waste disposal companies are suffering because increasingly clean production methods are eliminating the need for them.

Recycling may not be as profitable as once thought. The success of state programs have created a glut of raw materials, thus lowering their value. Taxpayers are paying for the service, rather than it paying for itself. There is also a trend toward monopolies in the waste management industry.

In Search Of New Markets Local officials and waste handling firms who have instituted successful curbside collection programs or drop-off centers later found themselves in a quandary when roller coaster [...]

In the following article, James DeLizzio describes his environmental company and its banking needs, which must be met by an organization that understands its business and demands. (Reprinted by permission of the publisher.)

Last year's downturn affected heavy industry, typically home to some of the nastier environmental liabilities, more lightly than the newer telecoms, media, and technology sectors. And while it is these [...]