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Stericycle Shares Fall on Disappointing 2nd-Quarter Results

Investors would have to agree the shares of medical waste company Stericyle Inc. (NASDAQ:SRCL) have been trashed over the past four years.

The Lake Forest, Illinois-based company's stock price is down nearly 70% since October 2015 and nearly 30% since August 2018. One bright spot for investors who bought shares at the beginning of 2019: it's up about $7 year to date, though at just under $44, it's $14 off where it was at the end of April. The stock got clipped last week when it reported disappointing results for the second quarter.

Sales for the period were down 7% year over year, a fact management attributed to "foreign exchange impact and expected softness in recall activity" and also apparently "significant weather impacts," according to an Aug.3 article in Riverton Roll.

It appears several analysts were either not buying the explanation or had been anticipating the poor quarter. In mid-July, Bank of America held its "underperform" rating on the stock and set a price target of $44, down from $46. Last week, Baird set the same price target while boosting its "underperform" rating to "neutral," not exactly a rousing endorsement.

Baird analyst David Manthey thinks better results for the company are years away, saying it faces a number of serious issues.

In early July, ValuEngine lowered Stericycle's rating from "sell" to a "strong sell" in a research note, as reported the Riverton article. Zacks Investment Research lowered the company from a "hold" rating to a "strong sell" in a research note in early May. In early June, BidaskClub cut Stericycle from a "hold" rating to a "sell."

One analyst who likes--or maybe liked-- the stock is Noam Ganel, who publishes the value-oriented stock publication Pen & Paper. He is also vice president of capital markets at Silvergate Bank.

In an article published in February, Ganel said he bought Stericycle shares after less than two hours of research. He's at least holding his own, having got in at $44. You just have to wonder if he's as optimistic about the company now as he was then.

Ganel's enthusiasm was based in great part on the "runway" of Stericycle, meaning the company is in an industry that has good growth prospects. He's right on that point. The global medical waste management market is expected to reach $18.5 billion by 2024, growing at a compound annual rate of more than 5%, according to a report by Market Value Research.

Ganel points out that the amount of medical waste produced by hospitals is increasing thanks to more medical procedures required by the aging population. He also cited the trend in hospitals to outsource such services as medical waste management. Finally, he thinks Stericycle will profit from increasing regulations. Others in the industry should also benefit, including Waste Management (NYSE:WM) and Sharps Compliance (NASDAQ:SMED).

In addition to hospitals, Stericycle also collects and processes medical waste from physicians, dental practices, outpatient clinics and long-term care facilities. Although medical and pharmaceutical waste management is its biggest business, the company also performs secure information destruction, live voice and automated communication services. Its services customers in the U.S. and internationally.

Maybe fresh blood at the top will help the company return to its winning ways. In February, Cindy J. Miller was appointed president and CEO, succeeding Charles A. Alutto. Miller had been president and chief operating officer. The company is looking for a new chief financial officer after Daniel V. Ginnetti was moved to executive vice president of international operations.

Disclosure: The author holds no positions in any of the companies mentioned in this article. He was employed by Stericycle in the early 1990s.

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This article first appeared on GuruFocus.