Analyst Is Cautious Citing Stericycle's Execution Risk And Premium Valuation Despite Intriguing Prospects

  • Truist Securities analyst Tobey Sommer initiates Stericycle, Inc. SRCL coverage with a Hold rating and a $45 price target.
  • The analyst expects the medical waste disposal firm to gain from improved operating performance and margin expansion, but a relatively expensive valuation might offset these.
  • Encouraging prospects for mid-teens EBITDA growth (13%-17%) and improving cash conversion beyond 2023 is like to boost the company's growth.
  • Conversely, Tobey notes that Stericycle has been bearing the brunt of excessive leverage and outdated internal systems recently. 
  • However, new management, which joined the company in mid-2019, began simplifying the bloated portfolio, cutting costs, and implementing unified IT systems. 
  • The analyst notes that this effort should be nearing completion by the end of 2023, providing investors clarity into the underlying economics of the core business. 
  • Truist Securities models a 1.5% growth rate for 2023 and 4% for 2024. This assumes 3.4% and 3.9% organic growth, respectively. 
  • Among others, growth in 2023 will come from 1% growth in NA regulated waste, 2.3% in NA secure information destruction. However, 1.8% contraction in the international business is estimated, coupled with 1.4% decrease in revenues from net divestitures and 0.3% currency headwind. 
  • Truist Securities expects network expansion to be a key driver of volume growth.
  • Price Action: SRCL shares are trading lower by 2.36% at $41.90 on the last check Tuesday.
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