Stericycle finds treasure in trash

The medical waste management company dominates the market but has room to grow.

By Stock Traders Daily Nov 1, 2012 10:29AM

CorbisBy Barry S. Cohen, Stock Traders Daily

 

Can Stericycle (SRCL) continue to turn trash into treasure for investors? That certainly appears to be the case. The suburban Chicago company specializing in treating and disposing of infectious medical waste hit a 52-week high last week.


The bump in share price came after Stericycle reported that revenue for the third quarter that ended Sept. 30, 2012, jumped more than 14% from the same period a year earlier. The company's gross profit was up a healthy 13.4%. But the lingering question is how to trade it. For our real time trading reports that help investors figure out exactly how to trade stocks like this, click here.

 

Stericycle continues to flex its muscles in an industry the company says was worth $15 billion worldwide in 2011. Unless some big solid waste players such as Waste Management (WM) or Republic Services (RG) decide to re-enter a market they abandoned years ago, Stericycle appears poised to remain a man among boys for the foreseeable future.

 

Moreover, the company is ideally positioned to take advantage of projected industry growth. That's going to be driven by an aging population requiring more medical services, health care cost pressures, tougher environmental regulations, medical waste treatment moving outside hospitals and expansion outside the U.S.

 

Even with its dominant position in medical waste, Stericycle has plenty of upside. After all, the company owns just 13% of the worldwide market. The rest belongs to onsite management systems and other competitors, many of the latter being local or regional companies. Acquisitions have played a major role in Stericycle's growth, and the company began expanding outside the U.S. in 1998. It has a foothold in Japan, Argentina, Mexico, Canada and the United Kingdom, among others.

 

One company competing in Stericycle's space is Sharps Compliance (SMED). Calling Sharps a competitor, however, might be somewhat of a stretch. The company, 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 price-to-earnings ratio 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 upside does Stericycle hold for investors? Analysts estimate Stericycle will earn $3.28 per share in 2012 and $3.66 in 2013. If the company's price-to-earnings ratio holds, there may be another $10 to $20 of headroom.


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Tags: SRCLWM
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