Stericycle Inc (SRCL, Financial) has recently seen a notable daily gain of 15.42%, with a modest 3-month gain of 2.72%. However, it reported a Loss Per Share of $0.22. This raises an intriguing question: is Stericycle fairly valued at its current market price? This analysis delves into the company's valuation to provide a clearer picture. Keep reading to uncover whether Stericycle stands as a wise investment choice.
Company Introduction
Stericycle is the largest provider of medical waste disposal and data destruction services in the United States. It operates a significant lead over its competitors, with its closest national competitor in medical waste disposal, Sharps Compliance, generating about 4% of Stericycle's global regulated waste and compliance revenue before its 2022 acquisition. The data destruction business, Shred-It, is approximately twice the size of its closest competitor, Iron Mountain's information destruction segment. Stericycle enjoys a robust global presence, with around 20% of its revenue generated outside North America.
Comparing the current stock price of $51.65 to the GF Value of $49.32, which estimates the fair market value, Stericycle appears to be fairly valued. This assessment is crucial as it helps investors gauge the investment potential of Stericycle by aligning its market price with its intrinsic value.
Understanding GF Value
The GF Value is a proprietary measure reflecting the true intrinsic value of a stock, calculated through historical trading multiples, a GuruFocus adjustment factor based on past business performance, and projected future business outcomes. If Stericycle's stock price trades above this line, it may suggest an overvaluation, predicting lower future returns. Conversely, trading below the GF Value could indicate undervaluation, suggesting higher future returns. Currently, Stericycle's market cap stands at $4.80 billion, with the stock price hovering around the GF Value, indicating a fair valuation.
Financial Strength and Stability
Investing in companies with robust financial health reduces the risk of significant losses. Stericycle's financial strength is rated as fair, with a cash-to-debt ratio of 0.02, placing it lower than 92.86% of its industry peers. Such metrics are crucial as they reflect the company's ability to manage debt and sustain operations during economic downturns.
Profitability and Growth Prospects
Consistent profitability is a key indicator of a company's investment potential. Over the last decade, Stericycle has maintained profitability, with an operating margin of 5.1%, though it ranks below 58.19% of its competitors. The company's profitability is ranked 4 out of 10, which suggests poor profitability, potentially impacting investor returns.
In terms of growth, Stericycle's revenue has seen a slight decline, with a 3-year average annual revenue growth rate of -0.5%, which is lower than 69.16% of the companies in the Waste Management industry. However, its EBITDA growth rate of 3.9% suggests some level of operational efficiency.
Evaluating ROIC and WACC
An effective way to assess a company's profitability and value creation is by comparing its Return on Invested Capital (ROIC) against its Weighted Average Cost of Capital (WACC). Stericycle's ROIC over the past year is -13.29, significantly lower than its WACC of 7.67, indicating that the company is not generating adequate returns on its investments.
Conclusion
Overall, Stericycle (SRCL, Financial) seems to be fairly valued at its current price, considering its market position and financial metrics. However, its financial stability and growth metrics suggest cautious optimism. Investors should closely monitor these aspects to make informed decisions. For a deeper dive into Stericycle's financials, consider exploring its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
