Unlock: Clean Harbors (CLH) Trade Idea

(This CLH Trade Idea was issued on October 30 for $1.70. The December 45 Puts were closed today for $3.30 or +95% gain)

Clean Harbors
Ticker: CLH
Sector: Environment Equipment
Current Price: $46.58
Target: $40.00
Stop Loss: $50.00
Time Duration: 49 Days

Trade Idea – Buy CLH December 45 Put for $1.70 or less.

For last four days traders have been gradually accumulating puts in November 45 to 40 strikes where open interest has steadily climbed from near zero. Earnings are coming out on November 4 before market opens. We like buying December 45 puts for $1.70 going into earnings in anticipation of gap down.

Last quarter they badly missed earnings with Q2 EPS coming in at 11 cents loss vs. 1 cent loss expected on revenues of $732M vs. $793M estimate. We expect no different this time. Taking notes from Needham Research, one of the challenges of driving growth in a diversified business can be the push/pull of differentiated pricing or demand dynamics in the various sub-markets. We believe that this challenge remains in CLH’s business as some segments such as Technical Services and Re-refined Oil may not be seeing the degree of momentum that the street has built into consensus view. That said, macro reads such as declining IP and PMI suggest to us growth in Tech Services may prove challenging. Coupled with continued pressures in energy-related areas and lower lube oil prices suggest near-term EBITDA is at risk of being cut further.

It is worth noting that despite sharp top and bottom line miss last quarter, street EPS estimate for 2016 has only comes down by 12 cents from $2.26 to $2.14. And there lies a disconnect in story between reality and consensus view. We believe more cuts are on the way.