Does Stericycle (NASDAQ: SRCL ) CEO Mark Miller get down on his knees
every morning and give thanks for the flotilla of medical syringes that
floated up on the New Jersey shore in 1987? If he doesnt, he should. Because
this ugly incident brought the importance of medical waste disposal to the
forefront, and resulted in the birth of Stericycle in 1989. The medical waste
biz has made him and a lot of investors wealthy in the years since SRCL went
public. The disposal of infectious medical is big business for Stericycle, but a
serious one. To a great degree the industry was driven by concerns about
contracting the AIDS virus. In reality, those risks were unfounded. Blood-borne
diseases like hepatitis were and are today a much greater risk but SRCL helped
calm public fears by treating medical waste safely and with care. Today,
Stericycle has the lions share – 14% of a $10.5 billion global market for
medical waste and it shows no signs of slowing down. In just the past six
months, Stericycle's shares have climbed from $66.53 to $85.54, a gain of
nearly 29%. Thats partly because SRCL is an industry giant, and partly because
the amount of medical waste the world produces is only going to grow in the
years to come. The ironic thing is, some experts don't think processing
medical waste in this costly manner besides used needles, of course is even
necessary, citing studies showing that household garbage left on the curbs has a
higher bacteria count. Thats a big change from the early days of Stericycle when
the company nearly folded when it was still small and privately held.
Luckily no desperation sale was made and, thanks to its deep-pocket investors
and a new strategy aimed at servicing doctors' offices and vets, Stericycle
climbed out of a huge hole and today looks virtually unstoppable. So is SRCL
stock a lock now that it has the size and a growing business of medical waste
fueling its success? Maybe. Most of its competitors are small and privately
held, not posing much of a serious threat. One company has shown some recent
spark, however. Sharps Compliance (NASDAQ: SMED ) is a Houston-based company
focused on disposing of medical waste and unused medications. The company's
shares have been on an upswing recently, climbing from $3.74 at the end of
January to close at $5.78 yesterday. The company is trading well above its 50-
and 200-week moving averages, so look for the uptick to continue. All three
analysts following Sharps have a "Buy" rating on the stock. The company
serves 4,000 customers in all 50 states. It appears to have plenty of upside
given that, based upon its current level of sales, Sharps has penetrated a mere
1% of the $1 billion market for disposal of unused medications. Its s flagship
product remains the Sharps Recovery System, which allows hospitals and other
health care facilities to ship their waste via UPS for proper disposal. Of
course, Sharps has a tough road ahead if it even expects to show up on
Stericycle's radar. The Illinois-based Stericycle serves nearly half a
million customers worldwide, the great majority of which are the highly
profitable small-quantity generators such as outpatient clinics, dental offices,
veterinary offices and retail pharmacies. And Stericycle only promises to get
bigger. The company completed 180 acquisitions from 1993 through 2009, with 130
in the United States and 50 internationally. And it's not done yet. Investors,
take note. As of this writing, Barry Cohen did not own a position in any of the
stocks named here.
