4 Reasons to Clean Up With This Moat Stock

Barbara Noverini: Stericycle is a great example of a wide moat that developed in an industry that’s protected by regulatory barriers to entry. It's the largest pure play medical-waste-management company in the world, and we believe its wide moat is composed of four main sources.

The first is company's valuable intangible assets, which are regulatory permits that allow the company to collect and properly dispose of medical waste, from large-quantity generators, such as metropolitan hospital systems, or small-quantity generators, such as private medical practices.

Second, customers are ultimately financially liable for improper waste handling. So we believe switching costs in the industry to be quite high, especially when compared with available alternatives and risks inherent in that, such as self-management or relying on fragmented players with tenuous operating histories.

Third, Stericycle's 25 years of acquisitions have led to an extremely dense operating network, which has provided the company with a cost advantage relative to smaller players with more sparse operating networks.

And fourth, we believe that the company has developed efficient scale within a niche market.

While the company is quite penetrated domestically, we believe that it will continue to successfully replicate it's business model internationally which provides a company with a long runway for growth.

The market is well aware or Stericycle's long-term growth potential, and therefore shares often trade at a premium to our fair value estimate, which is currently $107 per share. However we believe that this is a great name for investors to keep on a watchlist.