Increasing Profits by Pollution Control Stocks Make Them Consistent Winners
Vartanig G. Vartan, Ny Times, THE JOURNAL RECORD
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 purchases.''
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. …