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On Jun 5, we issued an updated research report on waste management firm Stericycle, Inc. (SRCL - Free Report) .
Headquartered in Lake Forest, IL, Stericycle is a leading provider of regulated medical waste management and product recall and return services in the U.S. It operates a national medical waste management network that caters to medical schools, hospitals and other healthcare providers. Medical waste includes single-use disposables like needles, syringes, gloves, and other supplies that have been in contact with blood or other body fluids, blood products and other items that can spread infection. The company operates in about 22 countries across the globe, with a network of over 650 facilities worldwide.
Stericycle’s network is the largest in the industry and provides it with routing efficiencies for its vehicles from the customer sites to the collection and processing facilities. This network is difficult to replicate and the lower costs further allow Stericycle to compete effectively on both service and price. Collection and transportation of medical waste account for the largest percentage of Stericycle’s operating costs and thus, gaining efficiencies in these is critical.
With a diligent execution of operational plans, Stericycle’s shares have performed relatively better than the Zacks categorized Waste Removal Services industry with an average return of 14.6% in the last six months compared with a 13.1% gain for the latter. A significant portion of Stericycle’s historical growth was due to the successful integration of acquisitions in both domestic and international markets. The company is continuously on the lookout for strategic acquisitions that will grow its market share and expand the geographic base. During the first quarter of 2017, the company completed 13 acquisitions globally, eight of which were in the domestic market.
Moving forward, the acquisition pool of Stericycle remains robust in multiple geographies and lines of business. International growth rates are expected to accelerate due to increasing customer adoption of multiple services and expansion into new lines of business. The inorganic strategy increases Stericycle’s customer base by providing a long-term growth platform for selling multiple services. Whether the customer is a large hospital system or a retail chain, Stericycle provides multiple services to help them improve their operations and to achieve their goals. As customers adopt these multiple services, they can almost triple their revenues in the long run. This augurs well for the long-term growth prospects of the company.
However, Stericycle operates in a highly-competitive market. The barriers to entry into the regulated waste collection and disposal business and the pharmaceutical returns business are very low. Competitors also resort to aggressive pricing to gain market share. This has often forced the company to reduce prices for customers due to competitive pressures, significantly impacting its bottom line.
The acquisition binge of the company has further resulted in higher overheads and integration-related expenses, which are weighing on margins. Furthermore, many acquisitions have lower gross margins and higher selling, general and administrative expenses that often negate the positives. Evolving laws and regulations impose new compliance requirements on Stericycle and remain significant headwinds.
Nevertheless, we remain impressed with the inherent growth potential of this Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the industry include Advanced Disposal Services, Inc. , Waste Management Inc. (WM - Free Report) and Republic Services, Inc. (RSG - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Advanced Disposal Services topped earnings estimates twice in the trailing four quarters with a stellar positive surprise of 227.8%.
Waste Management has a long-term earnings growth expectation of 9.5%. It topped estimates twice in the trailing four quarters with an average positive earnings surprise of 1.7%.
Republic Services has a long-term earnings growth expectation of 9.2%. It surpassed estimates thrice in the trailing four quarters with an average positive earnings surprise of 3.6%.
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Stericycle Maintains Core Focus Despite Prevailing Risks
On Jun 5, we issued an updated research report on waste management firm Stericycle, Inc. (SRCL - Free Report) .
Headquartered in Lake Forest, IL, Stericycle is a leading provider of regulated medical waste management and product recall and return services in the U.S. It operates a national medical waste management network that caters to medical schools, hospitals and other healthcare providers. Medical waste includes single-use disposables like needles, syringes, gloves, and other supplies that have been in contact with blood or other body fluids, blood products and other items that can spread infection. The company operates in about 22 countries across the globe, with a network of over 650 facilities worldwide.
Stericycle’s network is the largest in the industry and provides it with routing efficiencies for its vehicles from the customer sites to the collection and processing facilities. This network is difficult to replicate and the lower costs further allow Stericycle to compete effectively on both service and price. Collection and transportation of medical waste account for the largest percentage of Stericycle’s operating costs and thus, gaining efficiencies in these is critical.
With a diligent execution of operational plans, Stericycle’s shares have performed relatively better than the Zacks categorized Waste Removal Services industry with an average return of 14.6% in the last six months compared with a 13.1% gain for the latter. A significant portion of Stericycle’s historical growth was due to the successful integration of acquisitions in both domestic and international markets. The company is continuously on the lookout for strategic acquisitions that will grow its market share and expand the geographic base. During the first quarter of 2017, the company completed 13 acquisitions globally, eight of which were in the domestic market.
Moving forward, the acquisition pool of Stericycle remains robust in multiple geographies and lines of business. International growth rates are expected to accelerate due to increasing customer adoption of multiple services and expansion into new lines of business. The inorganic strategy increases Stericycle’s customer base by providing a long-term growth platform for selling multiple services. Whether the customer is a large hospital system or a retail chain, Stericycle provides multiple services to help them improve their operations and to achieve their goals. As customers adopt these multiple services, they can almost triple their revenues in the long run. This augurs well for the long-term growth prospects of the company.
However, Stericycle operates in a highly-competitive market. The barriers to entry into the regulated waste collection and disposal business and the pharmaceutical returns business are very low. Competitors also resort to aggressive pricing to gain market share. This has often forced the company to reduce prices for customers due to competitive pressures, significantly impacting its bottom line.
The acquisition binge of the company has further resulted in higher overheads and integration-related expenses, which are weighing on margins. Furthermore, many acquisitions have lower gross margins and higher selling, general and administrative expenses that often negate the positives. Evolving laws and regulations impose new compliance requirements on Stericycle and remain significant headwinds.
Nevertheless, we remain impressed with the inherent growth potential of this Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the industry include Advanced Disposal Services, Inc. , Waste Management Inc. (WM - Free Report) and Republic Services, Inc. (RSG - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Advanced Disposal Services topped earnings estimates twice in the trailing four quarters with a stellar positive surprise of 227.8%.
Waste Management has a long-term earnings growth expectation of 9.5%. It topped estimates twice in the trailing four quarters with an average positive earnings surprise of 1.7%.
Republic Services has a long-term earnings growth expectation of 9.2%. It surpassed estimates thrice in the trailing four quarters with an average positive earnings surprise of 3.6%.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana. Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look. See the pot trades we're targeting>>