Stericycle: Profit Margins Poised To Expand As Turnaround Progresses; Stock Price 30% Below Our FVE

Since its founding in 1989, Stericycle had been very acquisitive, having acquired over 500 companies. On the surface, this acquisitive strategy led to a lengthy period of impressive growth and the firm built unmatched scale. However, acquisitions began to stray from Stericycle's core competencies and poor integration efforts caused inefficiencies to build. After decades of strong growth and profitability, Stericycle's financial performance began to deteriorate in 2017. However, with a refreshed management team, led by CEO Cindy Miller, Stericycle’s much-needed turnaround strategy has progressed well. It has: 1) divested almost 20 noncore, low-margin businesses; 2) achieved its goal of reducing the firm’s debt leverage ratio to below 3 (it was 2.7 at the end of the second quarter); 3) been reinvesting in its competitively advantaged medical waste collection and disposal business, with improvements to its autoclave and incinerator infrastructure (including a new incinerator in Nevada)—and perhaps more fleet-related investment in the future; 4) moved the enterprise resource planning system implementation toward completion; and 5) implemented much-needed oversight and standardization across the company, which has improved revenue quality and operational efficiencies.