Stericycle's a Strong Bet - Barron's

Stericycle (SRCL), which handles medical waste disposal, has delivered a fantastic performance in recent years. Its annual return over the last decade averages 30% and it has met or beaten analysts' quarterly operating profit forecasts for more than 40 straight quarters. Likely to continue its winning streak, Barron's Christopher C. Williams writes that Stericycle is a solid bet to beat the overall market over the next 18 months.

Stericycle has never been a cheap stock, though with a recent close near $48 it's closer to its 52-week low of $44 than its 52-week high of $66. Fans say the stock could return to its high sometime during the next two years as Stericycle adds to its dominant 11% share of the global medical waste business. It's also on target to continue delivering robust quarterly results thanks to acquisitions and high-margin add-on services. The company could generate annual 15-20% profit gains for the next few years.

Stericycle is the king of its industry, with 78 waste-treatment and collection sites serving 418,000 customers. 22% of its sales come from markets outside the U.S, and contributed to the company's $1.1B in revenue last year. Small-quantity domestic customers generated 47% of last year's revenue, while hospitals, drug makers and other large clients accounted for 31%.

CFO Frank ten Brink says "we aren't seeing any impact" from the economic slowdown, partly because 95% of revenue comes from long-term contracts with automatic renewals. Stericycle is on track to report double-digit gains despite the recession. The company forecasts 2009 earnings of $175M-$179M, up from $149M in 2008. For 2010, analysts expect profit of $200M while some see the company's operating margin exceeding 27% next year vs. 26% in 2008. The consensus estimates might be low, however. Analysts usually don't include share repurchases or acquisitions in their calculations, and Stericycle is active on both fronts. It has bought 157 companies since 1993 and many more mom-and-pop operations are eager to sell to the well-capitalized company.

Stericycle has one major potential rival in Waste Management (WMI), the solid-waste giant which recently reaffirmed its interest in expanding into the medical-waste business. But Stericycle bulls argue it would take many years and a hefty investment for Waste Management to catch up to Stericycle's strong network. In any case, the fast-growing industry certainly could support two big players.

• Neal Kaufman, of Baron Capital, believes "in a year or two, Stericycle shares could get to the mid-to-high 60s, easily."

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• Stericycle: Q4 EPS of $0.45 in-line. Revenue of $274M (+8.9%) vs. $281M. (PR)

Comments

[Jeff Noel Abando]

Used to cater to both BAX and SRLC through private fleet leasing company, Penske, from 2006 to 2008 and I did track the two at least from both the rental and truck leasing side, and those two years as branch ops mgr, they both had increasing businesses as they both never stopped in contacting the branch non stop. Holidays, weekends, harsh weather, they just keep going. Cardinal Health was another account that kept they're existing fleet and somehow ordered more new fleet of day tractors and sleepers, and not sure how they are doing now, but they maybe a close 4h or 5th. interesting new subject that I can assist in more analyses later on...

2009 Mar 01 10:44 AM