SRCL - Stericycle

[longlake95]

Just flipping through the latest VL issue #2, date May 27th...it seems stericycle has sold off quite significantly....its cheaper than during the 2008-2009 crash...seems like an pretty stable biz...anyone more familiar with SRCL?

 

LL

 

[jobyts]

Looking at the  Q1 - 2016 investor presentation from http://investors.stericycle.com

From page 22, (Hospital/Physician example), does that mean the majority of the revenue come from Communications Solutions? That's just a call center without any moat behind it.

 

Communication solution + shredd-it aquisitions look detrimental to their core competency.

[vinod1]

I was just taking a look at Stericycle in the last couple of days and it has been on my to do list for a while.

 

The company has a pretty solid position in the medical waste segment but as already pointed out by jobyts above, the company is diworsifying. I do not think there is much a moat that can be built around document shredding. There are other very solid competitors and there is not much synergy between medical waste and document shredding, other than marketing costs.

 

Vinod

[sae85400]

Have had a lot of trouble integrating the shredd it acquisition and have announced they will not realize the synergies they once thought they would. Also dealing with pollution issues from their incinerators.

 

That said I purchased on an earnings miss earlier this year..

[handycap5]

Does anyone have a sense of what their organic growth is in the traditional sharps waste collection business? I'm looking at the 15.9% CAGR for revenue the last 10 years in the current investor deck. Very curious what is growth from diworsifying and what is from the traditional business.

 

I'm very surprised they don't seem to easily break-out the business into its obvious constituent pieces. In my anecdotal experience, the combination of: 1) an expensive stock on the numbers, 2) M&A, 3) obfuscating segment/business line reporting makes for a possibly "prickly" mix. don't want to get "stuck" overpaying.

 

But I'm a newbie, can someone knowledgeable help me?

 

SRCL

[wjsco]

I was just taking a look at Stericycle in the last couple of days and it has been on my to do list for a while.

 

The company has a pretty solid position in the medical waste segment but as already pointed out by jobyts above, the company is diworsifying. I do not think there is much a moat that can be built around document shredding. There are other very solid competitors and there is not much synergy between medical waste and document shredding, other than marketing costs.

 

Vinod

 

not sure about that. you can do all the document waste business for your current medical waste customers. so, revenue synergies. and then, it's just a logistics business...which means back-office + trucks. so probably cost synergies, too.

 

i was looking at the mand convert preferreds, but it seems like the common has de-risked an awful lot, and the upper collar of the conversion is only like 5.8 shares...implies a $140 stock price conversion on current pref quote of $82.5/pref share. so, u clip a 6.5% coupon, but if the stock hits 140, which it did last year, you lose the 40% upside from 100 to 140.

[wjsco]

Does anyone have a sense of what their organic growth is in the traditional sharps waste collection business? I'm looking at the 15.9% CAGR for revenue the last 10 years in the current investor deck. Very curious what is growth from diworsifying and what is from the traditional business.

 

I'm very surprised they don't seem to easily break-out the business into its obvious constituent pieces. In my anecdotal experience, the combination of: 1) an expensive stock on the numbers, 2) M&A, 3) obfuscating segment/business line reporting makes for a possibly "prickly" mix. don't want to get "stuck" overpaying.

 

But I'm a newbie, can someone knowledgeable help me?

 

SRCL

 

i can try to help! they do call out organic growth in their press releases..at least in the FY'15 release, they did. it is expensive by the numbers, but it's multiple is always super high, going back a decade...like 35-40x P/E. the difference this time is that the denominator is depressed-headline earnings are low bc 1) integration costs, and 2) as the other guy said, they're postponing some of their cost synergy initiatives (not sure if they actually said they wont get them, i think they just said they're deferring some initiatives so they dont mess stuff up). so margins are crimped. but if you do believe they can get those cost synergies, and get back to normal 25% op margins (note: gross margin hasnt compressed, only op margin i think. u should be able to take out SGA)....25% op margins on ~$3.5b in revenue is $875. subtract $85 in interest, and then 33% tax rate, and you get to roughly $530m in "normalized" NI. At it's current market cap, that's only 16x P/E, and it normally trades btwn 35-40? so it could be a good chance to get this great biz at a big discount.

 

also, theyve done like 430 acquisitions since early 90s...i was looking at a BCG (mgmt consulting) report on serial acquirers, and they had Ametek/Roper in there, as well as Perrigo and stericycle...stericycle has been exceptionally effective with M&G since the early '90s. However, there's a new CEO who came in 2013, and he did both the 1) industrial hazardous waste acquisition, and 2) the shred-it acquisition. so it looks like he is straying from the strategy they used to use, which im fairly certain was just a roll-up strategy. nothing wrong with expanding into adjacencies in my opinion, but this is now a "show me" story - if you're going to change course from pior strat, then the onus is on you to demonstrate that what youre doing is good. it certainly doesn't look promising so far, but that's precisely why im going to research it! because, the revenue synergies actually make sense to me. i think the cost synergies do, too - again, just a logistics business. so it could be that the new ceo is going off on a tangent and blowing the whole thing up, but it also could be that his acquisitions were prudent, and they've just hit a snag.

 

for example. shred-it had recently acquired another company itself, i believe. so they were still integrating that acquisition when they got acquired by stericycle. so it's a little messy, a little noisy, but again - gross margins are strong. thats the most important thing, i think - opex is just a consolidation exercise.

 

ill do some reading over the next couple of days and see if i can't come up with an opinion

[Phaceliacapital]

Stericycle underperformed during the quarter as headwinds related to their core, regulated

medical waste (RMW) segment began to emerge. Prior headwinds to the Company were

limited to non-core businesses or are short-term issues that should be remedied over the

next few quarters. While the stock has become cheap, historically and relatively, we did

not add to positions during the quarter, as we continue to evaluate the extent of the

pressure the Company is seeing in its RMW business.

 

Interesting that they didn't add..

[Sunrider]

Who is this from?

 

Stericycle underperformed during the quarter as headwinds related to their core, regulated

medical waste (RMW) segment began to emerge. Prior headwinds to the Company were

limited to non-core businesses or are short-term issues that should be remedied over the

next few quarters. While the stock has become cheap, historically and relatively, we did

not add to positions during the quarter, as we continue to evaluate the extent of the

pressure the Company is seeing in its RMW business.

 

Interesting that they didn't add..

[Phaceliacapital]

Wedgewood, they have it for quite some time in the portfolios.