On Nov 30, Zacks Investment Research updated the research report on waste management firm Stericycle, Inc. SRCL.
Stericycle reported relatively sedate third-quarter 2015 results with adjusted earnings of $1.08 per share, flat year over year and woefully short of the Zacks Consensus Estimate by 10 cents. GAAP net income for the reported quarter was $41.8 million or 47 cents per share compared with $82.8 million or 96 cents per share in the year-earlier quarter. The significant year-over-year decline in earnings despite healthy top-line improvement was primarily due to high operating, acquisition and integration expenses.
However, a significant portion of Stericycle’s historical growth is attributable to the successful integration of acquisitions in both domestic and international markets. The company is continuously on the lookout for strategic acquisitions that will enhance market share and expand its geographic base. The acquisition pool of the company remains robust in multiple geographies and lines of business. International growth rates are expected to accelerate due to increasing customer adoption of multiple services and expansion into new lines of business.
The global acquisition strategy increases Stericycle’s customer base, by providing a long-term growth platform for selling multiple services. Whether the customer is a large hospital system or a retail chain, Stericycle provides multiple services to help them improve their operations and achieve their goals. As customers adopt these multiple services, they can almost triple their revenues in the long run.
Stericycle has also closed the acquisition of information destruction services provider Shred-it International for $2.3 billion in cash from Cintas Corporation CTAS and its other partners. With Shred-it on board, Stericycle is expected to enhance its core compliance solutions portfolio and offer specialized services, thereby augmenting its value proposition to clients. The transaction is anticipated to result in cost synergies to the tune of $20–$30 million by 2018, leading to accretive earnings. Earnings per share is expected to increase by at least 10% in 2016 and by the high-teens in 2018, generating robust cash flow and over $1 billion in EBITDA in 2016 through improved margins and debt repayment.
We believe that the current acquisition will serve this Zacks Rank #3 (Hold) stock in good stead, expand its global client base and generate incremental revenues.
A couple of stocks in the broader Industrial Goods sector that are worth a look include Waste Management, Inc. WM and CBIZ, Inc. CBZ, both carrying a Zacks Rank #2 (Buy).
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