SRCL certainly occupies a sweet spot in the waste industry. Too bad that the stock price acknowledges that sweet spot.
Tougher Rules On Medical Waste Drive Growth At Disposal Firm
Thursday November 10, 7:00 pm ET
Alan R. Elliott
What's that old saw -- one man's trash is another man's treasure?
It rings true at Stericycle (NasdaqNM:SRCL - News), which hauls and processes medical waste for clients ranging from large hospitals and pharmaceutical companies to small dentistry practices.
The waste is often biologically contaminated, potentially infectious and contains used hypodermic needles and surgical supplies.
A confused grid of federal, state and local rules strictly guides disposal methods.
Stericycle has turned the steady advance of such rules into an equally steady financial track record.
The company is on track to post around $600 million in revenue this year, up from $516 million in 2004 and $324 million five years ago.
It turned its first profit in 1997 and has grown the bottom line every year since.
Stericycle operates in an ever evolving field. An example of that evolution can be found in Illinois, where hospitals have spent the past five years wrestling with stricter guidelines on emissions.
In 2000, new rules forced hospitals in Illinois to add emissions equipment or shut down their incinerators. Last year Gov. Rod Blagojevich raised the bar when he proposed shuttering the state's 11 remaining hospital-operated incinerators.
Officials with the Illinois Hospital Association say they received no hint that the governor or state Environmental Protection Agency were considering further measures.
"The first time we got any inkling of a problem is when the governor held a press conference and said, 'I want all the incinerators shut down,'" said IHA spokesman Danny Chun. "It basically came out of the blue."
The political pressure allied against the Illinois incinerators was just the kind of change Stericycle Chief Executive Jack Schuler looked to take advantage of when he founded the company in 1991.
Back then, the rise of AIDS, coupled with news reports that bags of blood vials and syringes washed onto New York and New Jersey beaches, raised concerns about the spread of infectious diseases.
New federal guidlines urged states to more closely monitor the disposal of medical waste.
In addition, the 1990 Clean Air Act led to the federal EPA's 1997 upgrade of performance standards for hospital, medical, infectious waste incinerators.
"There were about 2,400 incinerators out there before the new rules," said Alice Jacobsohn, director of the Medical Waste Institute. "Now we have somewhere around 100."
The shutdowns sent hospitals across the U.S. in search of waste disposal alternatives. Stericycle reaped the benefits.
The company uses a hub-and-spoke business model to gather and deliver waste to one of its 40 treatment centers in the U.S., Canada and Mexico.
Stericycle uses steam equipment to kill contaminants in 65% of its waste. A patented, low-frequency radio wave system neutralizes the dangers in another 20% of its waste. Fifteen percent goes into company-owned incinerators. Any leftover waste is baled and hauled to landfills.
The company posted third-quarter sales of $153.2 million, up 13% from the prior year. Earnings gained 13% to 52 cents a share.
Analysts polled by First Call expect full-year profit to rise 17% to $2.08 a share, then move up 15% to $2.40 in 2006.
Vast Wasteland
Stericycle's North American network reaches into Canada and Mexico. An increasing share of growth is likely to come from international markets, says analyst Matthew Litfin of William Blair & Co.
The company is eyeing countries that -- like the U.S. -- are not dominated by any one medical waste hauling firm. It has operations or joint ventures in Australia, Japan, Brazil, South Africa and the U.K.
A typical midsize hospital pays $30,000 to $40,000 a year for Stericycle's services.
Litfin says environmental and not-in-my backyard pressures make it nearly impossible for a hospital to restart a shutdown incinerator.
Large operators such as Waste Management (NYSE:WMI - News) offer Stericycle's most clear-cut competition. Smaller rivals struggle to compete on price. Newer, on-site alternatives hold little appeal.
"There have been a whole host of competing new products or services developed to do things on site," Litfin said. "But most hospitals, once it's outsourced, they are not trying to bring it back in."
biz.yahoo.com |
