KeyBanc Upgrades U.S. Ecology (ECOL) to Buy

KeyBanc upgraded U.S. Ecology (NASDAQ: ECOL) from Hold to Buy with a price target of $42.00. The change follows news it plans to acquire privately held Environmental Quality Co. for $465 million in cash.

Analyst Joe Box said, "While the Services business is anticipated to be dilutive to margins, returns and, potentially, the overall valuation, we are constructive on the EQ acquisition and are upgrading the shares to BUY from HOLD on the premise that additional value creation will offset these aforementioned factors. Specifically, we believe margin expansion and synergy opportunity at EQ could result in solid earnings accretion, potentially in excess of current consensus estimates ($1.73 for 2015). Assuming the deal closes January 1, 2015 and excluding purchase accounting/amortization of intangibles, we estimate earnings power could range from $1.84-$2.10 relative to our current 2015 estimate of $1.71. We are therefore introducing a $42 price target, which is 9.8x our 2015 pro forma EBITDA base case estimate of $134.6 million. Because the transaction is not expected to close until mid 2014, we will reevaluate our estimates after it closes."

For an analyst ratings summary and ratings history on U.S. Ecology click here. For more ratings news on U.S. Ecology click here.

Shares of U.S. Ecology closed at $35.74 yesterday.

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