Stericycle Earnings: Divestitures and Currency Headwinds Hide Solid Fundamentals

Narrow-moat Stericycle reported second-quarter results featuring a 1.5% year-over-year revenue decline and an operating loss of $24 million. The market reacted negatively to the results, and the stock traded down nearly 10% on July 27. We believe this reaction was unwarranted as underlying fundamentals remain solid. Excluding the effect of divestitures and foreign currency exchange, Stericycle achieved organic sales growth of 2.3% and adjusted EBITDA margin of 15.2%. Management also reaffirmed full-year guidance, which targets 3%-5% organic revenue growth and free cash flow of $175 million-$205 million. We maintain our $60 per share fair value estimate, and we believe Stericycle's stock is undervalued.