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Stericycle (SRCL) Rides on Client Retention and Buyouts

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Stericycle, Inc. (SRCL - Free Report) stock has rallied 11% in the past three months, significantly outperforming the industry’s gain of 0.5%.

We believe robust organic growth and strategic acquisitions have backed this impressive price performance. Stericycle’s focus on providing business-to-business services in highly regulated areas to help customers and businesses comply with tough regulatory policies is appreciable.

Notably, Stericycle reported better-than-expected first-quarter 2018 results. Adjusted earnings of $1.21 per share surpassed the Zacks Consensus Estimate by 17 cents and increased 11% on year-over-year basis. Revenues of $895 beat the consensus mark by $10 million and increased 0.3% year over year.

What’s Driving Stericycle?

Acquisitions have been a key growth catalyst for Stericycle. In first-quarter 2018, Stericyle completed nine acquisitions in the domestic market (all of which were tuck-in; eight in Secure Information Destruction and one in Regulated Medical Waste). These acquisitions contributed about $0.7 million to corporate revenues.

In 2017, Stericycle completed 30 acquisitions, which contributed $32.2 million to total revenues. In 2016, the company completed 31 acquisitions, which contributed 570.1 million to 2016 revenues. The acquisition pool of the company remains robust in multiple geographies and lines of business.

Organic growth also drivesStericycle’s revenues. In 2017 and 2016,organic growth contributed $20.1 million and $94.6 million to total revenues, respectively. We believe the company’s efforts to improve offerings and platforms have helped it build a strong and loyal customer base. It has a revenue retention rate of nearly 90%. Stericycle is trying to grow by selling additional services to existing customers, while securing new ones. Strong client relationships imply that the company enjoys a dominant position in the market.

Stericycle’s focus on providing business-to-business services in highly regulated areas to help customers and businesses comply with tough regulatory policies is appreciable. This makes it popular among smaller businesses where demand for regulatory assistance is high compared to larger businesses due to the lack of specialized staff. Such a business strategy generates higher profits as well as expands the company’s suite into additional service offerings like hazardous or pharmaceutical waste management, communication services and secure information destruction.

Zacks Rank & Stocks to Consider

Currently, Stericycle is a Zacks Rank #2 (Buy) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A few better-ranked stocks in the broader Business Services sector include Waste Connections, Inc. (WCN - Free Report) , Advanced Disposal Services, Inc. (ADSW - Free Report) and FLEETCOR Technologies, Inc (FLT - Free Report) . All the stocks carry a Zacks Rank #2.

The long-term expected EPS (three to five years) growth rate for Waste Connections, Advanced Disposal Services and FLEETCOR Technologies is 13.3%, 15.5% and 16.5%, respectively.

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