CECO Environmental Corp.: Why This Green Stock Could Double

CECO Environmental stockGreen Energy Mandate to Drive CECO Environmental Stock Higher

The green energy space got pumped after President Joe Biden took over and immediately introduced policies to save the climate. Rejoining the Paris Agreement, a global initiative to reduce the carbon footprint, was a major turning point.

A green energy play that could benefit from the shift in focus is CECO Environmental Corp. (NASDAQ:CECE). The company provides solutions to control pollution, improve the climate, and reduce the carbon footprint.

It seems like the perfect fit for U.S. and global green energy initiatives. But things have been frustrating for CECO Environmental.

CECE stock traded as low as $3.23 in March 2020, prior to rallying to a 52-week high of $9.47 after a breakout from an ascending triangle pattern in February 2021.

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But the breakout failed to hold. CECO Environmental stock has retrenched along with the rest of the green energy stocks. This provides an opportunity around the 200-day moving average.

For traders, the immediate technical target for CECE stock is $9.50, followed by longer-term price objectives at $14.00 and $20.00.

Chart courtesy of StockCharts.com

It’s going to take a lot of work on the part of CECO Environmental Corp., but the global push for green energy will provide strong tailwinds.

Consistency Is Crucial for CECE Stock

A look at the five-year revenue picture shows why CECO Environmental stock has been stuck in reverse.

After achieving revenues of $417.0 million in 2016, the next four years were disappointing. CECO Environmental Corp. reported revenue contractions in three of the past four years, including a five-year low of $315.0 million in 2020.

Fiscal Year Revenues (Millions) Growth
2016 $417.0 N/A
2017 $345.1 -17.3%
2018 $337.3 -2.2%
2019 $341.9 1.3%
2020 $316.0 -7.6%

(Source: “CECO Environmental Corp.” MarketWatch, last accessed April 20, 2021.)

The company’s outlook at this time doesn’t look great, but perhaps the green energy push could finally deliver good news.

Analysts estimate that CECO Environmental’s revenues will be flat this year, at $316.9 million, and rise by 11% to $351.7 million in 2022. (Source: “CECO Environmental Corp. (CECE),” Yahoo! Finance, last accessed April 20, 2021.)

The company reported five years straight of earnings before interest, taxes, depreciation, and amortization (EBITDA) income, but the lack of any sustained growth is concerning.

Fiscal Year EBITDA (Millions) Growth
2016 $58.1 N/A
2017 $28.7 -50.6%
2018 $27.6 -4.0%
2019 $30.2 9.6%
2020 $29.2 -3.0%

(Source: MarketWatch, op. cit.)

A bright spot for CECO Environmental Corp. was its move to generally accepted accounting principles (GAAP) earnings-per-share (EPS) profits in 2019 and 2020.

Fiscal Year GAAP Diluted EPS Growth
2016 -$1.12 N/A
2017 -$0.09 91.9%
2018 -$0.21 -127.9%
2019 $0.50 343.3%
2020 $0.23 -53.9%

(Source: MarketWatch, op. cit.)

On an adjusted basis, the company is expected to earn $0.53 per diluted share this year, followed by $0.70 in 2022. (Source: Yahoo! Finance, op. cit.)

If CECO Environmental Corp. can deliver close to that estimate, I would expect CECE stock to rally.

The company has been generating positive free cash flow, but the lack of consistency has been an issue.

Fiscal Year Free Cash Flow Growth
2016 $68.5 Million N/A
2017 $5.5 Million -91.9%
2018 $18.9 Million 240.4%
2019 $3.5 Million -81.7%
2020 $476,000 -86.2%

(Source: MarketWatch, op. cit.)

Analyst Take

While the stock market is mixed on CECO Environmental stock, there’s support from institutions and insiders. About 118 institutions hold an 83% stake in the outstanding shares of CECE stock, and insiders bought 108,500 shares over the last six months. (Source: Yahoo! Finance, op. cit.)

CECO Environmental Corp. trades at 0.77 times its consensus 2022 revenue estimate and 11 times its consensus 2022 EPS estimate. The valuation looks compelling if the company can deliver.