justin craigwell-graham charles gambino steven kahan jacob rapp prashant tiwari weiyi zhou yana...
TRANSCRIPT
Justin Craigwell-Graham
Charles GambinoSteven Kahan
Jacob RappPrashant Tiwari
Weiyi ZhouYana Zalukina
10/27/2009
http://life2gether.files.wordpress.com/2007/04/cardiothoracic_surgery1.jpg (Accessed 10/25/2009)
Founded in 1989 after the passage of the Medical Waste Tracking Act
In 1993 started acquisition strategy Launched IPO in 1996 Started International operations in 1998 Emerged as North America's largest provider of
medical waste services in 2000. Acquired Bio System Sharps in 2003 In 2003, entered the reverse pharmaceutical
industry via acquisition. In 2009, entered negotiations to acquire
competitor MedServe Inc.
In the business of the collection, transportation, treatment, disposal, and recycling of medical waste
Operations in the United States, Canada, Mexico, Argentina, Chile, the United Kingdom and Ireland
Full service for nearly 418,000 customers Foreign customers nearly 23% of revenues No single customer accounts for greater
than 2% of revenues.
45 Treatment stations
100 Transfer stations
1200 Route Managers
Uniquely prepared to respond promptly to natural or internal disaster
Stericycle.com (Accessed 10/25/09)
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For large-quantity generators of regulated waste such as hospitals, pharmaceutical companies and distributors, Stericycle offers: ◦ 11,000 customers worldwide◦ Institutional regulated waste management services ◦ Bio Systems® sharps management services to reduce
the risk of needle sticks ◦ A variety of products and services for infection control ◦ Regulated returns management services for expired or
recalled healthcare products
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For small-quantity generators of regulated waste such as doctors’ offices and for retail
pharmacies, Stericycle offers: ◦ 407,000 customers worldwide◦ Regulated waste management services ◦ Steri-Safe® Occupational Safety and Health Act and
Health ◦ Insurance Portability and Accountability Act (HIPAA) ◦ compliance programs ◦ A variety of products and services for infection control ◦ Regulated returns management services for expired or
recalled healthcare products
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Collection of
regulated waste
Processing Facility
Transfer Stations
Recycling or Permanent Disposal
Supply reusable leak-and puncture-resistant plastic containers
Collect containers of regulated waste at intervals specified by contract
Allows temporary hold of small loads of waste
Consolidated into full truckloads then transported to processing facility
Scanned to check for unacceptable hazardous materials
Waste is processed via Autoclaving, ETD, Incineration, or Chem-Clav
Resulting waste sent to resource recovery, recycling or disposal landfill
Extensive documentation throughout
SWOT AnalysisSWOT AnalysisStrengths
•Diverse customer base•Top 10 customers account for 7% of revenues•Broad range of services•Established national network•Diverse customer base and revenue stability•Ability to integrate acquisitions•High barriers to entry
Weaknesses•Exposure to environmental liabilities•Patents for ETD has started to expire in May 2009•Inability to complete acquisitions may slow down revenue and profit growth
Opportunities•Very fragmented industry: provides acquisition opportunities•Growing global market•High demand by small-quantity generators
Threats•Foreign currency exchange risk
Domestic Growth◦ Focus on Steri-Safe℠ , Bio Systems and Return Management
Services offerings International Growth
◦ Focus on integrating acquisitions completed and on pursuing attractive international market opportunities
Profit Growth◦ Improve Operating margins through improvements in
collection route densities, transportation costs and efficiency in processing plants
From 10-K statement (Feb-27-2009): • Different types of service providers, including a
large number of regional and local companies • On- site treatment of regulated waste by some
large- quantity generators, particularly hospitals
Peers:• Waste Management• Republic Services, Inc.• American Ecology Corporation• Steris Corporation
Private waste management:◦ Industry Market Cap: 39 Billion◦ Stericycle’s Market Cap: 4.5 Billion (11.6%)
Increased from 10.3% in 2008 and 9.3% in 2007
Industry Growth Factors◦ Aging of population results in increased medical
attention and an increase in quantity of regulated waste generated
◦ Pressure to reduce healthcare costs◦ Increased incentives for hospitals to “Go Green”
The Medical Waste Tracking Act of 1988:
◦ Medical waste is "any solid waste that is generated in the diagnosis, treatment, or immunization of human beings or animals, in research pertaining thereto, or in the production or testing of biologicals”
Source: http://www.epa.gov/osw/nonhaz/industrial/medical/tracking.htm (Assessed Oct. 22, 2009)
Subject to extensive and frequently changing laws and regulations:
◦ Proper handling and disposal of infectious agents carriers required
◦ Government permit to operate
In the U.S., there is uncertainty over a new healthcare bill◦ Likely to increase access to healthcare, increasing
demand and as a result, SRCL’s potential market◦ The government, however, is also looking for
ways to cut costs, which may cut into SRCL’s pricing power
◦ SRCL tries to market itself as able to reduce costs for its customers
Economy appears to have bottomed out on most factors, except employment◦ Outlook over the next several quarters and years
differs among the V-, U-, L-, and W-shape recession opinions
◦ Financial markets have thawed, but still tighter than before the crisis
◦ Acquisitions may be cheaper for SRCL
SRCL uses derivatives to hedge interest rate and currency risk against the British Pound◦ Other currencies, accounting for less than 25% of
2008 revenue, are not hedged Fuel costs are hedged through customer
contracts that allow for price adjustments due to gas and diesel fluctuations
Globally and domestically, the population is aging◦ Tends to increase the demand for healthcare,
SRCL’s source of revenues◦ The healthcare sector has weathered the
recession better than others◦ Being part of a regulated waste management
industry also makes SRCL a more stable company
Cautious optimism S&P 500 > 60% since March lows Shaky consumer confidence 9.8% unemployment Defensive or Value oriented companies
preferred
0.0%
50.0%
100.0%
150.0%
200.0%
250.0%
300.0%
Return on Equity % 16.8% 16.9% 13.2% 18.4% 17.7% 21.5% 22.6%
Net Income Margin % 14.5% 15.1% 11.0% 13.3% 12.7% 13.7% 14.6%
Total Asset Turnover 0.7x 0.7x 0.6x 0.7x 0.6x 0.6x 0.6x
Equity Multiplier 1.65 1.68 2.01 2.12 2.25 2.62 2.26
2003 2004 2005 2006 2007 2008As of Oct 24th
2009
Historical Capitalization
Balance Sheet as of Dec-31-2003 Dec-31-2004 Dec-31-2005 Dec-31-2006 Dec-31-2007 Dec-31-2008 Jun-30-2009
Pricing as of Mar-15-2004 Mar-11-2005 Mar-06-2006 Mar-01-2007 Feb-29-2008 Feb-27-2009 Oct-23-2009
Capitalization Detail
Share Price $22.86 $22.93 $31.64 $39.19 $53.89 $47.98 $53.17
x Shares Out. 84.1 90.0 88.0 88.5 87.5 85.3 85.1
= Market Capitalization 1,923.2 2,064.4 2,784.5 3,468.0 4,714.6 4,090.4 4,522.2
- Cash & Short Term Investments 7.9 7.9 8.5 16.0 18.4 10.5 3.7
+ Total Debt 167.8 203.6 360.9 465.8 635.8 792.7 785.6
+ Pref. Equity 20.9 - - - - - 0
+ Total Minority Interest - - - - - - 0
= Total Enterprise Value (TEV) 2,104.1 2,260.1 3,136.8 3,917.8 5,332.0 4,872.7 5,304.1
Book Value of Common Equity 407.8 495.4 521.6 625.1 714.1 670.5 766.6
+ Pref. Equity 20.9 - - - - - 0
+ Total Minority Interest - - - - - - 0
+ Total Debt 167.8 203.6 360.9 465.8 635.8 792.7 785.6
= Total Capital 596.6 699.0 882.5 1,090.9 1,349.9 1,463.2 1,552.2
AssumptionPeriod
Growth during forecast period 12% to 15% with the exception in 2013 2009-2018trending down from 2014
Growth after forecast period 3%WACC 9.32%Tax rates 35%COGS/Sales 56%SG&A/Sales 20%Net interest expense/Sales 3%D&A/Sales 3.30%
DCF AssumptionDCF Assumption
WACC CalculationWACC Calculation
Company Ticker Current Price # Shares Trailing P/E Price/Sales Price/Book EBITDA MultipleAmerican Ecology Corp. ECOL 19.20 18.1 16.164 1.977 3.749 7.198Republic Services Inc. RSG 27.71 378.5 --- 2.846 1.402 21.116Steris Corp. STE 32.08 58.5 16.953 1.445 2.463 7.906Waste Management, Inc. WM 31.48 490.7 14.211 1.154 2.554 7.649
High 16.953 2.846 3.749 21.116Low 14.211 1.154 1.402 7.198Average 15.776 1.855 2.542 10.967
Stericycle Inc. 53.17 85.05 30.410 0.049 6.744 16.788Earning per share $ 1.75
Sales per share $ 12.74 Trailing P/E P/S P/B EBITDA Multiple
Book per share $ 7.88 Low $ 24.85 $ 14.70 $ 11.05 $ 17.50
EBITDA 315.94 High $ 29.64 $ 36.26 $ 29.55 $ 69.20
Total Debt 785.6 Average $ 27.58 $ 23.64 $ 20.04 $ 31.50
Cash and Equivalent 3.7 High- Low 4.794 21.563 18.501 51.702No of shares outstanding 85.05
Valuation Method Weight Estimated Value per Share
Trailing P/E 10% $27.58
Price/Sales 10% $23.64
Price/Book 10% $20.04
EBITDA Multiple 10% $31.50
DCF 60% $27.67
Triangulated Value per Share $26.88
RCMP Portfolio
57%
2%
8%
6%
2%
1%
3%
7%
2%
6%2% 4%
CASH
AEE
AEO
AEO
DO
FR
JKHY
KMB
SRCL
WAG
WFR
MCD
RCMP Portfolio
58%
2%
8%
6%
2%
3%
8%
6%3% 4%
CASH
AEE
AEO
AEO
FR
JKHY
KMB
WAG
WFR
MCD
Before Sale After Sale
Correlation Table
Stericycle
American Eagle 0.0928
Diamond Offshore 0.0548
First Industrial -0.0480
Jack Henry 0.2402
Kimberly-Clark 0.1155
McDonalds 0.1487
Walgreens 0.0742
MEMC Electronics 0.1469
Ameren -0.0141
Triangulated value per share is $26.88 Market value per share is $53.17, on October
27th, 2009 Conclusion: SRCL is overvalued at the
current market price Sell 100 Shares but Keep on Watch List
◦ Good company versus good stock
Questions? Comments?