Rising profits for pollution control stocks have made them consistent
winners on Wall Street. Standard & Poor's index for this group
showed price gains of 67 percent in 1985, 52 percent in 1986 and 28
percent in 1987, compared with gains of 26 percent, 14 percent and 2
percent in the S&P 500-stock index.
Through last Wednesday's market close, the pollution control
group is down 6.5 percent so far this year, while the ``500'' is
ahead 4.9 percent. But a number of analysts continue to recommend
the group strongly, even as others advise a degree of caution.
``Investing in pollution control stocks is not without risk,''
Paul L. Huberman commented recently in Standard & Poor's Outlook.
``A possible de-emphasis of environmental issues by the public could
curtail enforcement efforts. Also, the Justice Department is
continuing to investigate allegations of price fixing and bid
rigging in the trash hauling industry.''
Moreover, dividend yields of pollution control issues are low,
while their price-earnings ratios command a substantial premium.
Weighing the risks and rewards, Huberman believes the group will
continue to outperform the market.
William Genco, an analyst at Merrill Lynch, carries a ``buy''
rating on Waste Management, Chemical Waste Management,
Browning-Ferris Industries and Rollins Environmental Services.
Jeffrey Klein and Marc H. Sulam of Kidder, Peabody & Co.
recommend Waste Management and Browning-Ferris as ``aggressive
Vishnu Swarup of Prudential-Bache Securities has taken a more
cautious stance, since he believes the heady growth rate in profits
will slow somewhat in the years ahead. Accordingly, he downgraded
Waste Management, Chemical Waste Management and Rollins from
``aggressive purchase'' to ``accumulate.''
``Between 10 percent and 20 percent of earnings growth for the
typical pollution control stock will have come from lower tax rates
in 1987 and 1988,'' Swarup said. ``In 1989, however, rates should
stabilize and, in some cases, increase.''
He also foresees some ``modest margin erosion'' for Waste
Management and Browning-Ferris. Both have expanded partly by
acquiring companies with lower profit margins. Browning-Ferris is
rated as an ``average performer'' over the next six months.
``Because of expiring investment tax credits in 1988,
Browning-Ferris will have a slightly higher effective tax rate for
its fiscal year ending Sept. 30, 1989, than for the previous fiscal
year,'' he said.
Waste Management is the nation's largest provider of
comprehensive waste management services. …