Beginning with the dividend expected to be declared in the second quarter, Covanta plans to lower the annualized payout to $0.32 per share from $1 per share previously.
According to Covanta’s calculations, this move will increase cash retention for other uses by $90 million on an annual basis.
“Regarding the dividend, the payout already exceeded 100% of the FY20 guidance midpoint before the crisis, and given the organic growth investment opportunities, a rebalancing of capital allocation has logic” commented Oppenheimer’s Noah Kaye following the update.
However, the analyst added that he was surprised by the timing (almost a month before the next scheduled board meeting) and the magnitude of the cut.
Covanta also revealed that all its waste-to-energy facilities remain in operation with minimal disruption. It is also initiating $15 to $30 million cost reduction program although according to the company’s statement it retains a “resilient balance sheet with no near-term maturities and ample liquidity.”
“We note that 80% of waste tip fees and 90% of energy sales are contracted or hedged and that CVA has not drawn down its revolver, which would seem to imply a degree of business visibility at odds with the suspension of guidance” said Kaye.
Nonetheless he remains bullish on the stock with a buy rating and no price target. Meanwhile TipRanks shows that the other analysts covering COVA prefer to remain on the sidelines, citing COVA’s large debt burden. (See Covanta’s stock analysis on TipRanks)
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