Stericycle (SRCL) is the company that takes care of the little box in the doctor’s office that the used needles get dropped into. But the company is more complex than this, providing waste management for hospitals, medical and dental offices, labs and pharmacies and other hazardous waste facilities. It also handles recalls.
This market Stericycle is in is highly fragmented, which works out well because it allows the company to grow through acquisitions, which SRCL has done more than 400 times since 1993. Still, Stericycle has just a 13% share of the total market with lots of room to grow. The company recently bought Shred-It and this will add 10% to 2016’s profits.
Revenues are insulated from economic cycles and Stericycle has 95% of its revenue under long-term contracts with price provisions which bump up prices over time. This is a quality business — for a price.
Ten Year Chart
SRCL is a great stock, as profits have grown each year dating back to the 1990s. During the last ten years profits have grown an average of 16% a year and the stock’s grown 17% a year. SRCL doesn’t pay a dividend, instead using its profits to make more acquisitions.
Analysts predict the company will grow profits 15% a year long-term. Last qtr SRCL had 12% sales growth and 11% profit growth. Both were affected negatively by the strong dollar, as 1/3rd of sales are International.
Profit History
This is a fine stock to own, but there’s a catch and that is the stock is always highly priced. SRCL currently sells for 30 times earnings, even though profits are expected to climb just 9% this year. Notice in the profit history table that the P/E is always in the high-20%s or low-30%s, even though the company grows profits in the mid teens.
Sharek’s Take
Right now, with SRCL having a P/E of 30 the stock isn’t a value and doesn’t have much near-term upside. But if you pass on this stock it may continue higher and make another ten-year chart similar to the one it just built. That’s been my situation, as I’ve known about the stock for a decade now, but didn’t buy in then because it was too high. Therefore I feel the prudent thing is to buy a little here and more if the stock declines in price. Get your foot in the door, as this is a quality stock. It’s quality for a price.
View the One Year Chart here. View the Earnings Table here.
