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Will Stericycle (SRCL) Disappoint this Earnings Season?
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Waste management firm Stericycle, Inc. (SRCL - Free Report) is scheduled to report second-quarter 2016 results after the closing bell on Jul 28. In the last reported quarter, adjusted earnings missed the Zacks Consensus Estimate by 4 cents. The company has a dismal earnings surprise history with a trailing four-quarter average negative earnings surprise of 2.29%.
Let’s see how things are shaping up for this announcement.
Key Factors in the Second Quarter
Stericycle is continuously on the lookout for strategic acquisitions that will expand market share and its geographic base. The acquisition pool of the company remains robust in multiple geographies and lines of business.
International growth rates are expected to accelerate due to increasing customer adoption of varied services and expansion into new lines of business.
The acquisition of information destruction services provider Shred-it International will enhance Stericycle’s core compliance solutions portfolio. The acquired unit has begun to offer specialized services, thereby augmenting its value proposition to clients.
However, high operating costs continue to be a headwind for Stericycle. In addition, a challenging macroeconomic environment and volatility in foreign exchange are affecting margins and the bottom line.
Moreover, Stericycle’s dependence on acquisitions to fuel growth and improve revenues has its flip side. Most of the acquired companies have lower gross margins and higher selling, general and administrative expenses. Acquisitions may also lead to higher overheads and integration-related expenses, which may result in lower profits in the second quarter.
In addition, 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 erodes the profitability of the company and will likely lead to lower earnings in the soon-to-be-reported quarter.
Our proven model does not conclusively show that Stericycle is likely to beat earnings this quarter as it lacks a key component. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below:
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently at -1.70%.
Zacks Rank: Stericycle Zacks Rank #3 when combined with a negative ESP makes surprise prediction uncertain.
We caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Bristol-Myers Squibb Company (BMY - Free Report) , earnings ESP of +1.49% and a Zacks Rank #1.
CalAtlantic Group, Inc. , earnings ESP of +9.21% and a Zacks Rank #1.
Innoviva, Inc. (INVA - Free Report) , earnings ESP of +25.00% and a Zacks Rank #1.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
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Will Stericycle (SRCL) Disappoint this Earnings Season?
Waste management firm Stericycle, Inc. (SRCL - Free Report) is scheduled to report second-quarter 2016 results after the closing bell on Jul 28. In the last reported quarter, adjusted earnings missed the Zacks Consensus Estimate by 4 cents. The company has a dismal earnings surprise history with a trailing four-quarter average negative earnings surprise of 2.29%.
Let’s see how things are shaping up for this announcement.
Key Factors in the Second Quarter
Stericycle is continuously on the lookout for strategic acquisitions that will expand market share and its geographic base. The acquisition pool of the company remains robust in multiple geographies and lines of business.
International growth rates are expected to accelerate due to increasing customer adoption of varied services and expansion into new lines of business.
The acquisition of information destruction services provider Shred-it International will enhance Stericycle’s core compliance solutions portfolio. The acquired unit has begun to offer specialized services, thereby augmenting its value proposition to clients.
However, high operating costs continue to be a headwind for Stericycle. In addition, a challenging macroeconomic environment and volatility in foreign exchange are affecting margins and the bottom line.
Moreover, Stericycle’s dependence on acquisitions to fuel growth and improve revenues has its flip side. Most of the acquired companies have lower gross margins and higher selling, general and administrative expenses. Acquisitions may also lead to higher overheads and integration-related expenses, which may result in lower profits in the second quarter.
In addition, 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 erodes the profitability of the company and will likely lead to lower earnings in the soon-to-be-reported quarter.
STERICYCLE INC Price and EPS Surprise
STERICYCLE INC Price and EPS Surprise | STERICYCLE INC Quote
Earnings Whispers
Our proven model does not conclusively show that Stericycle is likely to beat earnings this quarter as it lacks a key component. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below:
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently at -1.70%.
Zacks Rank: Stericycle Zacks Rank #3 when combined with a negative ESP makes surprise prediction uncertain.
We caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Bristol-Myers Squibb Company (BMY - Free Report) , earnings ESP of +1.49% and a Zacks Rank #1.
CalAtlantic Group, Inc. , earnings ESP of +9.21% and a Zacks Rank #1.
Innoviva, Inc. (INVA - Free Report) , earnings ESP of +25.00% and a Zacks Rank #1.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>