Stericycle: Restructuring Weighs, Shares Attractive

During the fourth quarter, the firm launched a comprehensive business transformation initiative aimed at standardizing and consolidating its global processes. While we expect restructuring efforts (including a sizable ERP implementation) to yield material longer-term benefits, heightened costs and investment will weigh on near-term profitability. Given slightly more clarity on cost impact, including lower-than-expected EBITDA guidance for 2018, we expect to temper our margin assumptions for the next several years. As a result, we expect to reduce our fair value in the ballpark of 5%-10%. However, in our view, the shares are undervalued, offering an attractive margin of safety to patient investors willing to stomach near-term volatility.

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