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Why Covanta Holding jumped 16% today

What happened

Shares of the waste management and energy solutions company Covanta (NYSE: CVA) rose 18% early Friday and remained up 16.3% at 1:50 p.m. EDT. The company released its third-quarter results Thursday evening and said its operations were back to near pre-pandemic levels.

However, the company’s shares are still down more than 40% year-to-date, even after that jump. The impacts of the pandemic hit its commercial and industrial waste volumes, but the company said that business segment was recovering.

So what

The world’s largest waste-to-energy provider, Covanta uses non-hazardous waste as fuel to power electric generators, keeping it out of landfills and reducing landfill methane emissions. After posting net losses in the first and second quarters, the company returned to profitability in the third.

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Covanta reported a 6% year-over-year increase in revenue and net income of $5 million. It was also free cash flow positive, giving investors hope that the company will be able to maintain its dividend.

Now what

Although it cut its dividend amid declining business activity and uncertainty at the start of the pandemic, Covanta’s payout is currently yielding 7.5%. It will need positive – and growing – free cash flow if it is to continue providing that dividend.

The company, with a market cap of $1.1 billion, has net debt of over $2.5 billion. Thursday’s earnings results gave investors more confidence in the state of its business and hope that dividend payments will continue.

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