Stericycle Maintains 2022 Financial Guidance Despite Underwhelming Q1 Results; Maintain $59 FVE

Stericycle's stock sold off sharply on April 28 after the narrow-moat-rated firm's first-quarter financial results came in short of sell-side consensus expectations. According to FactSet data, Stericycle's revenue and adjusted EPS missed the mean consensus estimates by 1% and 31%, respectively. Nevertheless, management maintained its 2022 financial guidance for 3%-5% revenue growth (off a $2.6 billion revenue base), adjusted EPS of $2.00-$2.30, and free cash flow of $125 million-$155 million. While Stericycle's first-quarter gross profit margin (36.8%) was lower than we had anticipated due to continued supply chain and inflationary headwinds, we believe management's efforts to improve price realization will become more apparent during the second half of 2022 (that is, we expect to see sequential gross margin improvement). Management said that additional fees and surcharges should add $25 million of incremental revenue in 2022. After reviewing our key valuation assumptions, we're maintaining our $59 fair value estimate. We continue to forecast Stericycle's top line growing at about a 4% compound annual rate through 2026 with EBITDA margin expanding to approximately 23.5%.