Stericycle Inc (NASDAQ:SRCL) Still Has Potential

January 22, 2015, 12:48 pm ET, BY Barry C.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Stericycle Inc (NASDAQ:SRCL) is living proof that one man’s trash is another man’s treasure.

The Lake Forest, Ill.-based medical waste disposal company continues to reward investors and should continue to going forward. After all, Stericycle literally has this specialized trash market cornered. And shrinking gas prices could help Stericycle’s bottom line given that transportation is one of its big costs.

Trading at $134 a share, Stericycle is up nearly 14 percent in the past year, outpacing the Dow, the NASDAQ and the S&P 500. The company’s performance during the past five years looks even better. During that time its shares have grown two and a half times.

In late October, Stericycle said it expects earnings this year to be within $4.69 – $4.75 per share, with revenues in the range of $2.82 billion to $2.87 billion; free cash flow is expected to be between $449 million and $460 million.

By hitting its earnings target, Stericycle would trade at a fairly lofty P-E of more than 28. Some investors might see this as a red flag, but this is a company still in a rapid growth phase, sparked in great part by overseas expansion and acquisitions.

For example, between 1993 and 2013, the company made nearly 350 acquisitions, 154 of which were outside the United States.  It now has regulated waste operations in Argentina, Brazil, Canada, Chile, Ireland, Japan, Mexico, Portugal, Romania, Spain, and the United Kingdom.

According to a market report published in May 2014 by Transparency Market Research the global medical waste management market was valued at $14.5 billion in 2012 and is expected to grow at a CAGR of 4.8% from 2013 to 2019, reaching an estimated $20.1 billion by 2019. As the report explains, growth is due to the aging of population and overall growth in healthcare industry. “As people age, they require increased medical attention and thus, contribute to the increasing amount of medical waste being generated in the treatment process. Globally, the healthcare industry is expanding at a steady rate and is characterized by rise in number of hospitals, out-patient offices, testing laboratories, dental offices, veterinary centers and pharmaceutical manufacturers,” the report points out.

Of course, the waste business is not for the faint of heart. Stericycle has felt the wrath of anti-abortion groups that claim the company disposes of aborted fetuses from family planning clinics. And in late September in Utah, the governor has asked the state’s attorney general to open a criminal investigation in allegations of misconduct at Stericycle’s medical waste incinerator that environmentalists have accused of polluting the air.

For Stericycle, challenges like these have proved to be just part of the cost of doing business in an industry that no one wants in their backyard. But growth in the healthcare and medical industries means that someone has to handle their waste, which includes human or animal tissue, blood-soaked cotton or bandages, discarded scalpels and blades, surgical gloves, used needles, syringes, cultures, stocks, chemicals, and unused and expired pharmaceuticals.

The analysts who follow the company seem to agree that the future for Stericycle looks promising. They give the company a 1.9 rating on a scale of 5, with 1 being a strong buy and 5 a sell. At the same time, the company is pushing their median target price of $137.50. The high target price is $156, which seems well within Stericycle’s reach.

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