When Stericycle (SRCL ) was featured in this column on May 27, the Street was high on the top U.S. provider of medical-waste disposal. The shares, trading at split-adjusted 36, rose to 40 by mid-June. Since then, however, they have sagged to 31, because of antitrust ills. Many analysts remain bullish--but not Evan Sturza of Sturza's Institutional Research, who thinks Stericycle is overvalued relative to its peers in waste management, and rates it a sell. He says the stock is worth 22. One hedge-fund manager shorting the stock sees Stericycle going even lower--to 16 in 12 months.
This pro's major concern is that Stericycle's settlement in August of an antitrust investigation in Arizona--and a similar one in Utah--"could open up a Pandora's box [in other states]." The probes were sparked by Stericycle's 1997 purchase of the Arizona medical-waste assets of Browning-Ferris Industries and its sale of Utah and Colorado properties to Browning. Stericycle agreed to pay Arizona $320,000 in civil penalties to settle and hopes to do the same with Utah. Although CEO Mark Miller says he is unaware of any other antitrust inquiries, Sturza feels the settlement "highlights Stericycle's anticompetitive pricing practices." So he expects more trouble from other state attorneys general.
The shorts are also alarmed by corporate insider selling at Stericycle. In November alone, insiders sold stock worth $22 million. Among them: Chairman Jack Schuler and Miller, who sold at 34 to 36 for a total of $8.8 million and $4.5 million, respectively. Miller says that despite the selling, management still owns 18% of the stock. Street consensus earnings estimates for Stericycle: $1.05 a share for 2002 and $1.29 for 2003.
Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.
By Gene G. Marcial