CECO Environmental (CECO)

InvestableTimely Buy
CECO Environmental catches our eye. Its sales and EPS are anticipated to grow nicely over the next 12 months, a welcome sign for investors. StockStory Analyst Team
Anthony Lee, Lead Equity Analyst
Kayode Omotosho, Equity Analyst

1. News

2. Summary

InvestableTimely Buy

Why CECO Environmental Is Interesting

With roots dating back to 1869 and a focus on creating cleaner industrial operations, CECO Environmental (NASDAQ:CECO) provides technology and expertise that helps industrial companies reduce emissions, treat water, and improve energy efficiency across various sectors.

  • Exciting sales outlook for the upcoming 12 months calls for 22.6% growth, an acceleration from its two-year trend
  • Annual revenue growth of 12.6% over the last five years was superb and indicates its market share increased during this cycle
  • A blemish is its modest revenue base of $608.3 million means it has less operating leverage but can also grow faster if it executes the right sales strategy
CECO Environmental has the potential to be a high-quality business. If you like the story, the valuation looks reasonable.
StockStory Analyst Team

Why Is Now The Time To Buy CECO Environmental?

CECO Environmental is trading at $25.92 per share, or 20.1x forward P/E. CECO Environmental’s valuation is higher than that of many in the business services space, sure. However, we still think the valuation is justified given the top-line growth.

It could be a good time to invest if you see something the market doesn’t.

3. CECO Environmental (CECO) Research Report: Q1 CY2025 Update

Environmental solutions provider CECO Environmental (NASDAQ:CECO) reported Q1 CY2025 results topping the market’s revenue expectations, with sales up 39.9% year on year to $176.7 million. The company’s full-year revenue guidance of $725 million at the midpoint came in 3.5% above analysts’ estimates. Its non-GAAP profit of $0.10 per share was 17.6% above analysts’ consensus estimates.

CECO Environmental (CECO) Q1 CY2025 Highlights:

  • Revenue: $176.7 million vs analyst estimates of $151.1 million (39.9% year-on-year growth, 17% beat)
  • Adjusted EPS: $0.10 vs analyst estimates of $0.09 (17.6% beat)
  • Adjusted EBITDA: $14 million vs analyst estimates of $13.35 million (7.9% margin, 4.9% beat)
  • The company reconfirmed its revenue guidance for the full year of $725 million at the midpoint
  • EBITDA guidance for the full year is $95 million at the midpoint, above analyst estimates of $91.51 million
  • Operating Margin: 35%, up from 6.1% in the same quarter last year
  • Free Cash Flow was -$15.1 million compared to -$1.9 million in the same quarter last year
  • Market Capitalization: $676.2 million

Company Overview

With roots dating back to 1869 and a focus on creating cleaner industrial operations, CECO Environmental (NASDAQ:CECO) provides technology and expertise that helps industrial companies reduce emissions, treat water, and improve energy efficiency across various sectors.

CECO Environmental operates at the intersection of industrial productivity and environmental protection, offering engineered solutions that address air pollution, water treatment, and energy efficiency challenges. The company's product portfolio includes specialized equipment such as dampers, scrubbers, filtration systems, thermal oxidizers, and water treatment packages that help industrial facilities meet regulatory requirements while optimizing their operations.

The company serves a diverse range of industries through two main segments: Engineered Systems and Industrial Process Solutions. The Engineered Systems segment focuses on emissions management, separation technologies, and acoustic control for sectors like power generation, hydrocarbon processing, and midstream oil and gas. The Industrial Process Solutions segment provides air pollution control, fluid handling, and filtration systems for industries ranging from semiconductor fabrication to food processing and automotive manufacturing.

A typical CECO customer might be a refinery seeking to reduce harmful emissions from its operations. CECO would design and install specialized scrubber systems that capture pollutants before they enter the atmosphere, helping the facility comply with environmental regulations while maintaining operational efficiency.

Rather than selling standardized products, CECO typically customizes its solutions to meet specific customer requirements. The company generates revenue through the design, manufacture, installation, and servicing of these engineered systems. CECO maintains a global presence with direct sales operations in key regions including the United States, Europe, the Middle East, and Asia, allowing it to serve multinational industrial clients worldwide.

4. Industrial & Environmental Services

Growing regulatory pressure on environmental compliance and increasing corporate ESG commitments should buoy the sector for years to come. On the other hand, environmental regulations continue to evolve, and this may require costly upgrades, volatility in commodity waste and recycling markets, and labor shortages in industrial services. As for digitization, a theme that is impacting nearly every industry, the increasing use of data, analytics, and automation will give rise to improved efficiency of operations. Conversely, though, the benefits of digitization also come with challenges of integrating new technologies into legacy systems.

CECO Environmental competes with other environmental technology and industrial solutions providers including Donaldson Company (NYSE:DCI), Evoqua Water Technologies (now part of Xylem, NYSE:XYL), Fuel Tech (NASDAQ:FTEK), and privately-held companies like Dürr Environmental and Babcock & Wilcox Environmental.

5. Sales Growth

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $608.3 million in revenue over the past 12 months, CECO Environmental is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels. On the bright side, it can grow faster because it has more room to expand.

As you can see below, CECO Environmental’s 12.6% annualized revenue growth over the last five years was excellent. This is an encouraging starting point for our analysis because it shows CECO Environmental’s demand was higher than many business services companies.

CECO Environmental Quarterly Revenue

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. CECO Environmental’s annualized revenue growth of 17.2% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated. CECO Environmental Year-On-Year Revenue Growth

This quarter, CECO Environmental reported wonderful year-on-year revenue growth of 39.9%, and its $176.7 million of revenue exceeded Wall Street’s estimates by 17%.

Looking ahead, sell-side analysts expect revenue to grow 18.2% over the next 12 months, similar to its two-year rate. This projection is eye-popping and suggests the market is baking in success for its products and services.

6. Operating Margin

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D.

CECO Environmental was profitable over the last five years but held back by its large cost base. Its average operating margin of 7.6% was weak for a business services business.

On the plus side, CECO Environmental’s operating margin rose by 10.8 percentage points over the last five years, as its sales growth gave it immense operating leverage.

CECO Environmental Trailing 12-Month Operating Margin (GAAP)

This quarter, CECO Environmental generated an operating profit margin of 35%, up 28.9 percentage points year on year. This increase was a welcome development and shows it was more efficient.

7. Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

CECO Environmental’s EPS grew at a weak 2.8% compounded annual growth rate over the last five years, lower than its 12.6% annualized revenue growth. However, its operating margin actually expanded during this time, telling us that non-fundamental factors such as interest expenses and taxes affected its ultimate earnings.

CECO Environmental Trailing 12-Month EPS (Non-GAAP)

Diving into the nuances of CECO Environmental’s earnings can give us a better understanding of its performance. A five-year view shows CECO Environmental has diluted its shareholders, growing its share count by 3.7%. This dilution overshadowed its increased operating efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals. CECO Environmental Diluted Shares Outstanding

In Q1, CECO Environmental reported EPS at $0.10, down from $0.11 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects CECO Environmental’s full-year EPS of $0.72 to grow 79.6%.

8. Cash Is King

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

CECO Environmental has shown weak cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.7%, subpar for a business services business.

Taking a step back, we can see that CECO Environmental’s margin dropped by 2.2 percentage points during that time. If the trend continues, it could signal it’s in the middle of an investment cycle.

CECO Environmental Trailing 12-Month Free Cash Flow Margin

CECO Environmental burned through $15.1 million of cash in Q1, equivalent to a negative 8.5% margin. The company’s cash burn was similar to its $1.9 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings.

9. Return on Invested Capital (ROIC)

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although CECO Environmental has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 8%, somewhat low compared to the best business services companies that consistently pump out 25%+.

CECO Environmental Trailing 12-Month Return On Invested Capital

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, CECO Environmental’s ROIC has increased. its rising ROIC is a good sign and could suggest its competitive advantage or profitable growth opportunities are expanding.

10. Balance Sheet Assessment

CECO Environmental reported $146.5 million of cash and $358.4 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

CECO Environmental Net Debt Position

With $63.4 million of EBITDA over the last 12 months, we view CECO Environmental’s 3.3× net-debt-to-EBITDA ratio as safe. We also see its $3.39 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

11. Key Takeaways from CECO Environmental’s Q1 Results

We were impressed by how significantly CECO Environmental blew past analysts’ EPS expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a solid quarter. The stock traded up 3.1% to $19.79 immediately after reporting.

12. Is Now The Time To Buy CECO Environmental?

Updated: May 4, 2025 at 10:07 PM EDT

When considering an investment in CECO Environmental, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

In our opinion, CECO Environmental is a solid company. First off, its revenue growth was impressive over the last five years and is expected to accelerate over the next 12 months. And while its subscale operations give it fewer distribution channels than its larger rivals, its expanding adjusted operating margin shows the business has become more efficient. On top of that, its projected EPS for the next year implies the company’s fundamentals will improve.

CECO Environmental’s P/E ratio based on the next 12 months is 20.1x. Looking at the business services space right now, CECO Environmental trades at a compelling valuation. If you’re a fan of the business and management team, now is a good time to scoop up some shares.

Wall Street analysts have a consensus one-year price target of $33.67 on the company (compared to the current share price of $25.92), implying they see 29.9% upside in buying CECO Environmental in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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