Enviri Has Its Ducks In A Row, And There's More Upside From Here (Rating Upgrade)

Core Viewpoint - Enviri is showing improvements in its CleanEarth business, with management successfully addressing previous challenges and achieving better margins, although macroeconomic pressures may limit growth in 2024 [3][5][9] Business Performance - CleanEarth's EBITDA margin improved to 15.1% in Q1'24, driven by a 2% revenue growth primarily from price adjustments, despite lackluster volumes [3] - The Environmental segment reported a 9% growth in Q1, with services up 13% but offset by declines in EcoProducts and aluminum processing [6] - Management anticipates flat performance for the remainder of 2024 due to tough year-ago comparisons and a slowdown in industrial activity [3][6] Future Outlook - Long-term growth opportunities exist in PFAS remediation, reshoring, and zero-waste initiatives, which could drive revenue beyond just industrial production proxies [3] - Expected revenue growth of 3% to 4% in the long term, with free cash flow (FCF) growth projected in the high single digits [8] - Management targets an EBITDA margin improvement to 15% by 2026/27 and 16% by 2030, with a current expectation of 13.5% for this year [8] Strategic Decisions - Enviri has decided to retain its Rail business after failing to receive satisfactory offers, indicating a focus on improving profitability before considering divestiture [7] - The company is heavily indebted, which constrains reinvestment into growth projects, with deleveraging prioritized for free cash flow [8] Market Conditions - The steel industry is facing challenges, with flat global volumes and weaker pricing impacting Enviri's metal reclamation operations [6] - Nickel prices have declined by about 20% year-over-year, affecting segment revenue, although the company is working on expanding its range of slag/waste-derived products [6]