Stericycle Inc (SRCL): This Company Keeps Its Healthcare Clients Safe

Peer comparison

Stericycle’s peers include Waste Management, Inc. (NYSE:WM) and Republic Services, Inc. (NYSE:RSG).

Waste Management, Inc. (NYSE:WM) is a provider of waste management services to a mix of commercial, industrial, and municipal customers in the U.S. It also offers medical waste services, but this is a small component of the overall business, representing less than 2% of its total revenue.

It grew its quarterly adjusted earnings per diluted share by 5% year-on-year to $0.40 in the first quarter of fiscal 2013, and the company should not have any issues increasing its full year fiscal 2013 adjusted earnings per diluted share by 4%-6% as per management guidance. Accretive acquisitions are the key drivers for Waste Management, Inc. (NYSE:WM), given the maturity of the waste management business. Waste Management’s high leverage with a gearing of 150% is a potential concern for investors.

Republic Services, Inc. (NYSE:RSG) is another important waste management company in the U.S. Its niches are in the franchise and small & mid-size markets, which represents about 60% of its revenue. In these markets, Republic Services, Inc. (NYSE:RSG) is usually either the exclusive service provider or the market leader by virtue of its route density.

Its financial results for the first quarter of fiscal 2013 failed to impress, with quarterly revenue and adjusted net income growth almost flat on a year-on-year basis. Looking ahead, Republic Services is increasing its investments in recycling facilities, enabling it to internalize a larger proportion of recyclable material.

Between Republic Services and Waste Management, I will choose the latter for its scale. However, I prefer Stericycle Inc (NASDAQ:SRCL) over Waste Management, given the former’s lower gearing and potential for margin expansion.

Conclusion

Stericycle Inc (NASDAQ:SRCL) impresses me with its stellar financial track record and potential for margin expansion. Despite this, it seems overpriced at 2 times PEG and 27.9 times forward earnings. I will only consider an investment in this stock if valuations become more reasonable, or when Stericycle initiates a dividend.

The article This Company Keeps Its Healthcare Clients Safe originally appeared on Fool.com and is written by Mark Lin.

Mark Lin has no position in any stocks mentioned. The Motley Fool recommends Republic Services, Stericycle, and Waste Management. The Motley Fool owns shares of Waste Management. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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