Stericycle: Gains in Medical Waste
07/22/2014 8:00 am EST
The latest addition to our Growth Portfolio is a strong and rapidly-growing franchise within the healthcare sector, explains Stephen Leeb, editor of The Complete Investor.
Stericycle (SRCL) is the global leader in collecting, treating, and disposing of medical waste throughout the world. It has demonstrated the ability to gain market share as its markets have grown.
The firm is leveraged to the aging of the developed world and the rising demand for healthcare in the developing world.
Over the past five and ten years, the company has been remarkably consistent, with virtually every metric—from free cash flow to revenue growth—averaging in the high teens to low 20s. Indeed, over at least the past 15 years, earnings and revenues have risen without interruption.
The domestic market generates about 70% of revenues—compared to 80% a decade ago, reelecting the company’s faster growth in the far larger international arena.
Sizable cash flow has gone to acquisitions in this fragmented industry and to modest share repurchases.
We expect growth to remain in the high teens for at least the next five years, and even a five-year annualized rate of 20% wouldn’t surprise us.
Despite the high current p/e, the stock—thanks to its very high growth rate—has a modest price to earnings growth (PEG) ratio. The balance sheet is excellent, reflecting outstanding management.
It’s one of the surest ways to play the growing demand for healthcare, and our three to five year price target is at least $200 a share.
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