Environmental Stocks

Stericycle Inc Valuation – February 2017 $SRCL

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – January 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Stericycle Inc (SRCL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Stericycle, Inc. is a business-to-business services provider with a focus on regulated and compliance solutions for healthcare, retail and commercial businesses. The Company’s solutions include the collection and processing of specialized waste for disposal, the collection of personal and confidential information for secure destruction, and a range of training, consulting, recall/return, communication and compliance services. It operates regulated waste management networks in the United States and over 20 other countries. It operates through two geographical segments: United States and International. The networks include a total of approximately 250 processing facilities, over 360 transfer sites and over 140 other service facilities. Its regulated waste processing treatments or technologies are autoclaving and incineration. It offers services to a range of business customers, including hospitals, physician and dental practices, outpatient clinics and other businesses.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of SRCL – February 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $6,135,130,226 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.44 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 90.85% Pass
6. Moderate PEmg Ratio PEmg < 20 23.66 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.26 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.44 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 12.37 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $3.18
MG Growth Estimate 3.29%
MG Value $47.90
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $46.05
MG Value based on 0% Growth $27.00
Market Implied Growth Rate 7.58%
Current Price $75.13
% of Intrinsic Value 156.86%

Stericycle Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.6 in 2012 to an estimated $3.18 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.58% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Stericycle Inc revealed the company was trading above its Graham Number of $46.17. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 23.66, which was below the industry average of 29.32, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-40.15.

Stericycle Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$40.15
Graham Number $46.17
PEmg 23.66
Current Ratio 1.44
PB Ratio 2.26
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $773,938,000
Total Current Liabilities $537,727,000
Long-Term Debt $2,921,770,000
Total Assets $7,057,264,000
Intangible Assets $5,524,008,000
Total Liabilities $4,209,807,000
Shares Outstanding (Diluted Average) 85,571,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.83
Dec2015 $2.98
Dec2014 $3.79
Dec2013 $3.56
Dec2012 $3.08
Dec2011 $2.69
Dec2010 $2.39
Dec2009 $2.03
Dec2008 $1.68
Dec2007 $1.32
Dec2006 $1.16
Dec2005 $0.74
Dec2004 $0.85
Dec2003 $0.72
Dec2002 $0.51
Dec2001 $0.18
Dec2000 $0.18
Dec1999 $0.23
Dec1998 $0.13
Dec1997 $0.03
Dec1996 -$0.08

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.18
Dec2015 $3.31
Dec2014 $3.35
Dec2013 $3.00
Dec2012 $2.60
Dec2011 $2.25
Dec2010 $1.93
Dec2009 $1.59
Dec2008 $1.30
Dec2007 $1.06
Dec2006 $0.88
Dec2005 $0.69
Dec2004 $0.61
Dec2003 $0.45
Dec2002 $0.29
Dec2001 $0.17
Dec2000 $0.15

Recommended Reading:

Other ModernGraham posts about the company

Stericycle Inc. Analysis – October 2015 Update $SRCL
14 Companies in the Spotlight This Week – 10/18/14
Stericycle Inc. Annual Stock Valuation – 2014 $SRCL

Other ModernGraham posts about related companies

Republic Services Inc Valuation – January 2017 $RSG
Clean Harbors Inc Valuation – Initial Coverage $CLH
Waste Management Inc Valuation – August 2016 $WM
Stericycle Inc. Analysis – October 2015 Update $SRCL
Republic Services Inc. Analysis – September 2015 Update $RSG
Waste Management Inc. Analysis – 2015 Update $WM
Stericycle Inc. Annual Stock Valuation – 2014 $SRCL
Republic Services Inc. Annual Stock Valuation – September 2014 $RSG

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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