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Stericycle (SRCL) Down 5.8% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Stericycle (SRCL - Free Report) . Shares have lost about 5.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Stericycle due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Stericycle Surpasses Q3 Earnings & Revenues Estimates

Stericycle reported impressive third-quarter 2020 results, beating the Zacks Consensus Estimate on both earnings and revenues.

Adjusted earnings per share of 68 cents beat the Zacks Consensus Estimate by 19.3% but declined 15% year over year. Earnings fell due to an unfavorable impact of 12 cents from divestitures and foreign-exchange rates, 4 cents from lower income from operations and 7 cents from higher adjusted tax rate.  These were partially offset by a benefit of 11 cents from lower interest expenses.

Revenues of $636.4 million marginally beat the consensus mark and decreased 23.6% year over year. The downfall was due to divestitures that hurt revenues by $162 million, and lower Secure Information Destruction that impacted revenues by $36.6 million. Revenues were down $4.3% on an organic basis due to the COVID-19 pandemic.

Revenues by Service

Regulated Waste and Compliance Services revenues decreased 24.7% year over year on a reported basis but increased marginally on an organic basis to $415.5 million. The segment contributed 65% of total revenues.

Secure Information Destruction revenues declined 15.9% year over year on a reported basis and 16.8% organically to $187.3 million. The segment contributed 30% to total revenues.

Communication and Related Services revenues fell 43% year over year on a reported basis and 2.9% organically to $33.6 million. The segment contributed 5% of total revenues.

Revenues by Geography

Revenues from North America were $517.1 million, down 25.3% year over year on a reported basis and 4.7% organically. The region contributed 81% of total revenues.

International revenues of $119.3 million fell 15.5% year over year on a reported basis and 2.5% organically. The region contributed 19% of total revenues.

Profitability Performance

Adjusted gross profit in the reported quarter amounted to $267.3 million compared with $299.2 million in the year-ago quarter. Adjusted gross profit margin was 42%, up from 35.9% in the prior-year quarter.

Adjusted operating income was $101 million compared with $118.8 million in the year-ago quarter. Adjusted operating income margin was 15.9%, up from 14.3% in the prior-year quarter.

Adjusted EBITDA was $126.8 million compared with $150.5 million in the year-ago quarter. Adjusted EBITDA margin was 19.9%, up from 18.1% in the prior-year quarter.

Balance Sheet & Cash Flow

Stericycle exited the quarter with cash and cash equivalents of $59.5 million compared with $42 million at the end of the prior quarter. Long-term debt was $1.88 billion compared with $1.99 billion at the end of the prior quarter.

The company generated $157.9 million of net cash from operating activities and capex was $20.1 million in the quarter. Free cash flow of $137.8 million was generated in the quarter.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 8.55% due to these changes.

VGM Scores

At this time, Stericycle has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Stericycle has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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