Stericycle (SRCL): Valuation Discount to S&P Will Be Short Lived - Jefferies
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Jefferies analyst, Sean Dodge, reiterated his Buy rating on shares of Stericycle (NASDAQ: SRCL) after speaking with management.
The analyst believes that transient issues will continue to weigh on growth causing organic growth to average 5% over the next 3+ years. Despite continuing pricing pressure, more emphasis on margins could drive 100-120 bps of annual improvement. Tuck-in M&A will remain a top priority for FCF while still leaving ~$300M of excess annual cash. EPS growth likely averages in the mid-teens. Renewed efforts to maximize shareholder value have SRCL contemplating a dividend in the next 2-3 years, which we think could produce a 2%+ yield.
The analyst stated "Buy Now" as "shares trade 1.5x turns below S&P 500 (NTM P/E) despite SRCL's highly-recurring, recession-resilient revenue stream and more attractive earnings growth outlook. Over the past 15 years, SRCL has traded at an average 12-turn premium to the market. Volatility—largely driven by macro headwinds in 'non-core' businesses—has interrupted what has otherwise been a LT (dating back to 1997) track-record of operational excellence. As SRCL begins to lap these headwinds (starting in 3Q), and consistency returns to the story, we expect it will once again command a premium valuation".
No change to the price target of $125.
Shares of Stericycle closed at $85.79 yesterday.
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