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David Wolke

RCMP – March 9, 2005. David Wolke. Headquarters: Lake Forest, IL Employees: ~3,500 History: Late 1980’s, heavy media attention on medical waste that washed up on shores in New York and New Jersey.

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David Wolke

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  1. RCMP – March 9, 2005 David Wolke

  2. Headquarters: Lake Forest, IL • Employees: ~3,500 • History: • Late 1980’s, heavy media attention on medical waste that washed up on shores in New York and New Jersey. • Government has stepped in and made strict regulations for all business that are dealing with medical waste. • Industry and business started soon after Medical Waste Tracking Act of 1988 was passed. Founders thought there would be a great need for companies to meet the federal regulations in a cost effective or efficient way.

  3. Competitors

  4. Competitors • American Ecology Corporation (ECOL) • Smaller company with ~ 300 Million Market Cap • handles hazardous, more toxic materials • Waste Management Inc. (WMI) • Larger company with ~ 15 Billion Market Cap • More diversified services • Hit each stage along the way: collection, transport, disposal, landfill • Also have a recycling and resource recovery business…energy source • Announced in 2005 they would be entering the medical waste area

  5. Stericyle & American Ecology & Waste Management Spike in ECOL followed a news release of landing a contract with Honeywell Intl. Past 12 Months

  6. Stericyle & American Ecology & Waste Management Past 6 Months

  7. Strengths • Over 333,000 accounts • 325,000 Small accounts • 8,000 Large accounts • No one client accounts for over 2% of revenues • Top ten clients represent only 9% of revenues • Well-diversified

  8. Risks • Industry is highly regulated • Stericycle must follow numerous government regulations in addition to the Medical Waste Tracking Act, i.e. Clean Air act • Acquiring in foreign markets • Highly competitive industry • Waste Management announced in Feb. 05 that they would be offering medical waste services to customers • Stock Sensitivity…

  9. Stock Fluctuations due to Market News Downgrade by Bank of America, stock drops 7.5% in days to follow Upgrade by William Blair, stock rises 5% “Investors snatch up Trash Hauler Stocks” article, stock jumps 6.2%

  10. Small Customers • 325,000 small medical waste clients • Outpatient clinics, medical / dental offices, long-term care facilities • High profit • Trust Streicycle for compliance reasons • Steri-Safe…

  11. Steri-Safe • Program created to ensure compliance of federal rules and regulations • Comprehensive training, education, safety concerns, and products to assist in ensuring a compliant and safe environment • 43% of small customer growth in Q4 • 13.5% of Accounts on the Premium Level

  12. Interesting Treatment Technologies • Autoclaving • High temperature steam is used to destroy pathogens, waste is then sent to shredding or grinding. • ETD Treatment • Grind waste, then use an oscillating field of low-frequency radio waves to heat waste. The low-frequency waves destroy pathogens up to 5 inches deep.

  13. Growth • Acquisitions • 2004 - $63 million in revenue growth • $47.6 million attributed to less than 1 year old acquisitions, approximately 75% of revenue growth • 2005 - Q4 • Acquisitions account for over 57% of growth • International opportunities • UK, Canada, Mexico • Purchase Pharmaceutical Service Companies • New opportunities, lower margins • Focus on Hospital pharmacies, product recalls, destruction services, and overall logistics in regulated industry

  14. Financial Analysis • Refer to Excel file. • Revenue growth, cost of revenue assumptions • Implied growth of EPS based on Forward P/E • Discounted Cash Flow Analysis

  15. Stericycle and our Portfolio (3/7/06) • Own 400 Shares • Bought at $19.4687 • Current Price at $63.28, • gain of about $17,500 or 225% • Currently represents 8.9% of our portfolio.

  16. Key Issues • Stock trading at about 42 P/E, compared to a market P/E of around 18. • Indication that Medical Waste Services industry has not grown the past few years. • Waste Management Inc. may become a strong competitor or potential acquirer. • Stericycle may begin to see more internal growth, in result, slower growth. • Stock sensative to market news.

  17. Key Issues continued • Stericycle has produced good margins, leader in medical waste • Pharmaceutical Services could be a good area for growth, although estimated to produce smaller margins • International opportunities still an option • Not main priority • Different regulations in every country • Risks of international business

  18. Recommendation Sell 200 shares of Stericycle (SRCL) at the market. Action would decrease SRCL value from ~$25,600 to ~$12,800. Decrease weight in portfolio from about 9% to 4.5%

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