Chicago, IL – December 12, 2024 – Today, Zacks Equity Research Donaldson Co., Inc. DCI, Tetra Tech, Inc. TTEK and Atmus Filtration Technologies Inc. ATMU.
Link: https://www.zacks.com/commentary/2381985/3-pollution-control-stocks-poised-to-gain-on-prospering-industry-trends
The Zacks Pollution Control industry is well-poised to benefit from the healthy demand for air pollution abatement products, thanks to rising greenhouse gas emissions and growing awareness among the masses regarding health-related risks. Strict laws and emission standards implemented by countries worldwide should continue to drive demand for industry participants.
However, higher adoption of renewable sources of energy with rising preference for alternative fuels and electric vehicles has marred the industry’s outlook. Donaldson Co., Inc., Tetra Tech, Inc. and Atmus Filtration Technologies Inc. are likely to capitalize on these opportunities.
The Zacks Pollution Control industry comprises companies engaged in providing innovative filtration systems, replacement parts, solutions for managing medical wastes, energy recovery devices and other products. These products are primarily used in commercial, automotive repair, industrial, home healthcare, retail, construction, pharmaceutical and hospitality end markets.
A few industry participants offer solutions to deal with industrial waste and commercial chemical products and technologies to tackle air pollution. One of the companies also delivers services related to infrastructure, water, resource management, energy, etc., to government and commercial clients. These companies are enhancing investments in developing innovative technologies, improving customer and employee experience and enhancing supply-chain modernization programs.
Addition of Oil Rigs: The ongoing geopolitical instability in the Middle East, Russia and Ukraine has made U.S. shale drillers consider adding rigs. This implies the possibility of more oil production, thereby spurring demand for pollution control equipment and services. Also, the requirement for engineering and assessment services in disaster-related work is creating a favorable demand environment for industry players.
Emergence of Alternative Sources of Energy: Amid government pressure to reduce emissions, renewable sources of energy have taken over fossil fuels for power generation. Corporations have increasingly been focusing on sustainability initiatives to move ahead in their path to net-zero emissions. Automakers are rapidly transitioning to electric vehicles as part of their sustainability goals. Although beneficial for environmental protection, these actions hinder the industry’s growth.
The Zacks Pollution Control industry, housed within the broader Zacks Industrial Products sector, currently carries a Zacks Industry Rank #78. This rank places it in the top 31% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bullish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of the positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are keeping more faith in this group’s earnings growth potential. The industry’s earnings estimates for 2024 have increased 2.6% over the past year.
Given the upbeat near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it is worth looking at the industry’s shareholder returns and current valuation first.
Over the past year, the Zacks Pollution Control industry has underperformed the Zacks S&P 500 composite index and the broader Industrial Products sector.
Over this period, the industry has grown 28.6% compared with the broader sectors and the S&P 500 Index’s rise of 28.9% and 31.4%, respectively.
Based on the forward P/E (F12M), a commonly used multiple for valuing pollution control stocks, the industry is currently trading at 26.46X compared with the S&P 500’s 22.65X. It is also above the sector’s P/E (F12M) ratio of 21.8X.
In the past five years, the industry has traded as high as 33.69X, as low as 20.35X and at the median of 26.47X.
Tetra Tech: Headquartered in Pasadena, CA, the company is a leading provider of consulting, engineering, program management and technical services. It serves clients by providing cost-effective and innovative solutions for dealing with the fundamental needs for water, environmental and alternative energy services. Tetra Tech is benefiting from its focus on providing high-end consulting, design and engineering services. The U.S. government’s priorities on infrastructure development and focus on climate change, advanced water treatment and environment are likely to benefit TTEK in the quarters ahead.
This Zacks Rank #2 (Buy) company’s earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 4.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. The consensus estimate for TTEK’s fiscal 2025 (ending September 2025) earnings has remained stable in the past 60 days. The stock has gained 28.2% in the past year.
Atmus Filtration: Headquartered in Nashville, TN, the company is a leading designer and producer of filtration and media solutions. Its leading position in the industrial filtration market, effective pricing actions and sound capital allocation strategy are expected to support its growth. Its investments in manufacturing capacity to improve automation and provide its customers with industry-leading products are likely to bolster growth. ATMU currently carries a Zacks Rank of 2.
Atmus Filtration’s earnings surpassed the Zacks Consensus Estimate in each of the preceding four quarters, the average beat being 13.8%. The consensus estimate for ATMU’s 2024 earnings has been revised 4.7% upward in the past 60 days. Shares of the company have surged 72.4% in the past year.
Donaldson: Headquartered in Bloomington, MN, the company is engaged in the manufacturing and selling of filtration systems and replacement parts across the world. DCI is well-positioned to benefit from its focus on innovation, growth investments and a healthy demand scenario in the quarters ahead.
Solid momentum in the aftermarket business, driven by healthy demand for replacement filters and strength in the commercial aerospace and rotorcraft markets, bodes well for the company. Solid momentum in the disk drive business is also beneficial. The acquisitions of Univercells Technologies and Isolere Bio, which have strengthened DCI’s Life Sciences segment, are expected to bolster the top line.
Donaldson’s earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 7.1%. The consensus estimate for DCI’s fiscal 2025 (ending July 2025) earnings has increased 0.3% in the past 60 days. The Zacks Rank #3 (Hold) company has gained 16.3% in a year.
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