Covanta Holding Corp. (CVA), a developer of waste-to-energy plants, may be a takeover target as “persistent undervaluation” frustrates shareholders including Chairman Sam Zell, Paul Clegg, a New York-based analyst with Mizuho Securities USA Inc., said today in a note to clients.
Anticipated demand for waste-to-energy systems makes Covanta “an attractive package in our view,” Clegg said. He has a “buy” rating on the shares and a $ 20 price target.
Potential buyers could include large Asian or European conglomerates looking for an entry into U.S. renewable energy markets, or a rival firm in the trash-to-power industry such as Houston-based Waste Management Inc. (WM), Clegg said. Covanta has a market capitalization of almost $ 2.5 billion.
Zell, 69, has been chairman of Covanta since September, 2005 and holds about a 10 percent stake through his Chai Trust Company, making him the largest shareholder.
“Zell has shown some savvy in monetizing assets at the right time,” Clegg said in an interview. “Covanta’s got a unique portfolio of base-load renewable power plants that will be highly desirable as nuclear plants retire around the globe.” Base-load plants can run as needed, in contrast to intermittent energy sources such as wind and solar energy.
Covanta, based in Morristown, New Jersey, was up for a fifth day, gaining 21 cents, or 1.3 percent, to $ 16.70 at 12:49 p.m. in New York Stock Exchange composite trading. They have declined 2.9 percent this year.
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