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?