Company Spotlight: Stericycle, Inc.

All Out War With Germs

Nasdaq: SRCL
$58.87 (as of 12/12/07 )
P/E 32	PSR 4.3
ROE 18.4%	BETA 0.54
Debt/Eq. 0.83
Our "Five Benchmarks" tutorial explains these numbers

• The Good: Demand strong domestically and internationally.
• The Bad: Valuation is very high.
• The Beautiful: The future looks bright.

December 12, 2007 - Stericycle, Inc. (SRCL-NASDAQ) treats medical rubble. A leading medical waste management company, Stericycle serves 351,700 customers in North America (U.S., Puerto Rico, Canada), Mexico, and the UK, including outpatient clinics, hospitals, dental offices, and blood banks. At 53 treatment centers in North America and 22 in the UK, the company treats medical waste through autoclaving (using high temperature and pressure to kill pathogens), incineration, and its electro-thermal-deactivation (ETD) process, which uses low-frequency radio waves to destroy pathogens so the waste can be recycled or used for fuel in waste-to-energy plants. Stericycle also has technology licensing agreements with companies in Australia. Brazil, and Japan.

In 1999, this stock was in the garbage bin, going for $2.40 a share at its low point (split adjusted for 2 stock splits, each 2 for 1).  Now it's hitting all-time highs with a future that looks promising.  Earnings are projected to grow by 13.5% a year, on average, in the next 5 years while sales are expected to increase by 9% a year, on average, in the same time period.

Earnings have been the fuel for the stock's impressive run.  Starting in 2004, when they were 85 cents a share, they've gone to $1.04, then $1.21, followed by $1.42 this year (projected) and expectations of $1.65 next year.  Over the last 5 years, they've grown by 34.5% a year, on average.

Stericycle's revenues are benefitting from strong domestic and international demand for its products, in particular its Steri Safe for small quantity accounts (individual doctor's offices) and its Bio Systems platform for its large quantity accounts (mainly hospitals).  The small quantity accounts are generally higher margined and generate about $400 million of the company's $920 million sales.  Aiding revenues recently has been higher recall activity in pharmaceuticals.

Some other numbers: Net profit margin is 13.7% this year with a forecast of 14.5% next year.  Current assets are 1.5 times current liabilities.  There is no dividend.  Debt is 45% of capital.  Return on equity is a healthy 18.4%.  Long term debt is $550 million with plans to reduce it by $100 million next year and continued repayment in the following years.  Officers and directors own 7.1% of the stock.

Stericycle is the only medical waste company with a national presence.  While it has competition from local firms, there's no question it has a competitive advantage over most of them.  With its new Bio Systems program gaining traction in hospital use and more patients being treated at local doctors on an outpatient basis where the Steri Safe system is used, the company would appear to have solid earnings potential.  But investors already know that.  They've bid the stock to its highest P/E level (32).  This stock may have more momentum over the next 12 to 18 months, but be aware that most of the goodness seems already baked into the stock's price.

- Company Web site: www.stericycle.com

- Ted Allrich

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