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 doesn’t, 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 lion’s 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%. That’s 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. That’s 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.
