Waste management firm Stericycle, Inc. SRCL is scheduled to report second-quarter 2017 results after the closing bell on Aug 3. In the last reported quarter, the company’s adjusted earnings exceeded the Zacks Consensus Estimate by 5 cents. The company has a modest earnings history with three beats in the trailing four quarters with an average positive surprise of 4.4%.
Let’s see how things are shaping up for this announcement.
Factors to Consider
Stericycle is focused on increasing its SQ customer base (small-quantity customers that include outpatient clinics, medical and dental offices, long-term and sub-acute care facilities, and retail pharmacies), as it generates higher gross margins than the LQ customers (large-quantity customers that include hospitals, blood banks, and pharmaceutical manufacturers). In addition, Stericycle offers multiple service offerings to its customers, which add to the value of each account. For its SQ customers, the services include Steri-Safe and clinical compliance offerings and for LQ customers, services comprise Bio Systems and Rx Waste Compliance. Within the SQ business, the company is continually investing in data analytic capabilities to improve its performance.
The company expects a revenue growth rate of 3–5% for the next three to five years on the back of favorable demand patterns. The healthy demand schedule is largely driven by factors including an aging population and growing needs of healthcare, higher enforcement of compliance regulations, and continued trend by customers to outsource services to focus on core businesses.
A significant portion of Stericycle’s historical growth was due to the successful integration of acquisitions in both domestic and international markets. The company is continuously on the lookout for strategic acquisitions that will grow its market share and expand its geographic base. The acquisition pool of the company remains robust in multiple geographies and lines of business. International growth rates are expected to accelerate due to increasing customer adoption of multiple services and expansion into new lines of business. The global acquisition strategy increases Stericycle’s customer base by providing a long-term growth platform for selling multiple services. Strategic acquisitions and a steady stock repurchase program are likely to supplement organic growth initiatives and drive additional shareholder value.
However, Stericycle operates in a highly-competitive market. The barriers to entry into the regulated waste collection and disposal business and the pharmaceutical returns business are very low. Competitors may also resort to aggressive pricing to gain market share. In the past, the company was forced to reduce prices for LQ customers due to competitive pressure, which could be repeated in the future. This forces us to be bearish on the stock to some extent.
High operating costs continue to be a headwind for Stericycle. In addition, a challenging macroeconomic environment and volatility in foreign exchange are affecting margins and the bottom line.
Our proven model does not conclusively show that Stericycle is likely to beat earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and Zacks Consensus Estimate, is 0.00% as both are currently pegged at $1.13. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Stericycle has a Zacks Rank #2. While this increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.
Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.
Stocks to Consider
Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Nu Skin Enterprises, Inc. NUS has an Earnings ESP of +2.86% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Clorox Company CLX has an Earnings ESP of +0.67% and a Zacks Rank #3.
Kellogg Company K has an Earnings ESP of +2.17% and a Zacks Rank #2.
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Stericycle, Inc. (SRCL): Free Stock Analysis Report
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