Seeking Alpha
Long/short equity, contrarian, newsletter provider, research analyst
Profile| Send Message|
( followers)

Unless big solid waste players Waste Management (NYSE:WM) or Republic Services (NYSE:RSG) decide to re-enter a market they abandoned years ago, Stericycle (NASDAQ:SRCL) will continue to be a man among boys in the $15 billion worldwide market for medical waste.

The suburban Chicago company continues to turn trash into treasure for investors. Last week Stericycle hit a 52-week high. The bump in share price came after the company reported revenue for the third quarter ended Sept. 30, 2012, jumped more than 14 percent from the same period a year earlier. The company's gross profit was up a healthy 13.4 percent. But the lingering question is how to trade it. Our real time trading reports help investors figure out exactly how to trade stocks like this.

Stericycle's prospects look equally bright for a number of reasons. For one, Stericycle has the resources to keep up with the confusing array of state, local and federal standards for medical waste disposal. Hospitals and medical practices don't so they'll continue to outsource the service to someone who does.

And that "someone" is most likely to be Stericycle. Competitors considering entering the medical waste disposal business are scared off by the high barriers to entry, assuring Stericycle's margins remain fat. For the first nine months of 2012, Stericycle's profit margin was 14 percent. Also, the company knows how to do acquisitions, having gobbled up more than 200 companies in the past 18 years. And don't overlook the growth opportunities with the nearly half a million customers the company already has. Recently, Chief Financial Officer Frank ten Brink said Stericycle can more than double and even triple the revenue from customers who add services the company already provides..

One company competing in Stericycle's space is Sharps Compliance Corp. (NASDAQ:SMED). Calling Sharps a competitor, however, might be somewhat of a stretch. The Houston-based firm, which specializes in collecting sharps such as needles and syringes, hasn't exactly wowed investors. Analysts project Sharps will lose 8 cents a share in its current fiscal year ending in June 2013 before returning to modest profitability the following year. Little wonder that the company trades at just above $3 a share, about the middle of its 52-week range.

Investors might be concerned that Stericycle is a bit pricey. After all, it sells at a lofty P/E of 31 based on trailing earnings. That's almost twice as high as solid waste behemoths Waste Management and Republic Services. Then again, the margins in medical waste are much fatter.

Just how much price appreciation does Stericycle hold for investors? Analysts estimate the company will earn $3.28 per share in 2012 and $3.66 in 2013. If its P/E holds, there may be another $10 to $20 of headroom. For more information about stocks in this space, our real time trading reports help investors identify opportunities before they happen

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: By Barry Cohen, Writer for Stock Traders Daily

Source: Stericycle A Man Among Boys In Medical Waste Market