Shares of Stericycle, Inc. (SRCL - Free Report) hit a new 52-week low of $38.45 in the trading session on Mar 25, before closing a tad higher at $42.24.
The company’s shares have decreased 20.1% over the past year, compared with 16.8% loss of the industry it belongs to.
Let’s delve deeper into the factors which have led to the company’s underperformance.
Consecutive Revenue Miss
Stericycle reported consecutive lower-than-expected revenue performance in three of the last four quarters. We believe macroeconomic factors of sorted office paper pricing, foreign exchange rates and decline in Communication and Related Services (“CRS”) businesses have been unfavorably impacting the company’s top-line growth.
Declining CRS Businesses
Stericycle’s Communication and Related Services (“CRS”) businesses have been weak for quite some time, weighing on its top line. The CRS business is witnessing lower revenues due to decline in recall events and lower call volumes in communication solutions. Notably, CRS revenues declined 30.4% year over year in 2019 and 18.2% in 2018. Also, lease exit costs associated with the closure/consolidation of call centers in Domestic CRS is a headwind.
Stericycle operates in a highly-competitive waste collection and disposal industry. In addition to stiff competition from large national companies, many small, regional and local companies also compete aggressively in terms of pricing. This had earlier forced Stericycle to reduce prices to retain its existing customers and attract new ones. The threat of pricing pressure is expected to prevail in the future as well. Consistent reduction in price and the inability to increase prices can significantly reduce the company’s earnings.
Foreign Currency Exchange Rate Fluctuations
Vast global presence exposes Stericycle to the risks associated with foreign currency exchange rate fluctuations. The company serves a diverse customer base of more than one million customers, with operations in 20 different markets outside the United States. It operates in all the major international markets including Argentina, Austria, Australia, Belgium, Brazil, Canada, Chile, France, Germany, Ireland, Japan, Luxembourg, Mexico, the Netherlands, Portugal, Republic of Korea, Romania, Singapore, Spain and the United Kingdom, with business transactions in different currencies other than the U.S. dollar. Notably, in 2019, 2018 and 2017, foreign exchange rates had reduced revenues by $67.8 million, $26.8 million and $12.3 million, respectively.
Zacks Rank & Stocks to Consider
Currently, Stericycle carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Zacks Business Services sector are Omnicom (OMC - Free Report) , TransUnion (TRU - Free Report) and Genpact (G - 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.
Long-term expected EPS (three to five years) growth rate for Omnicom, TransUnion and Genpact is 5.6%, 12.8% and 13.9%, respectively.
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