SRCL Presentation for RCMP

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SRCL Presentation for RCMP

• By Joe Vaccaro, Paul Ripsky, Bilal Rathore,
  Christina Guang Lu
• 04/09/2009

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Current Position and Recommendation

• Purchased 200 shares in March 2001
• 21 split twice
• Sold 200 shares in March 2006 and again in
  November 2008
• Currently own 200 shares _at_ 51.27
• Unrealized gain of 8,307.12
• We recommend to sell 100 shares of SRCL at the
  market price of 51.80 (4/9)

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Company History

• Founded in 1989 after the passage of the Medical
  Waste Tracking Act
• Launched IPO in 1996
• Started International operations in 1998
• Emerged as North America's largest provider of
  medical waste services in 2000.
• Acquired Bio System Sharps in 2003

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Company Overview

• Offers collection, transportation, treatment,
  disposal, and recycling of medical waste
• Full service for nearly 400,000 customers
• Foreign customers nearly 23 of revenues
• No single customer accounts for greater than 2
  of revenues.

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Stericycle has two main clients

• Large Quantity Generators (LQGs)
• Hospitals, distributors, and pharmaceutical
  companies
• Bio Systems aids LQGs in the disposal of needles
  and syringes
• Small Quantity Generators (SQGs)
• Doctors' offices and retail pharmacies
• SQGs use SteriSafe to dispose of RMW (radioactive
  mixed wastes).

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Products and Services

• Medical Waste Disposal
• Specialize in the collection, treatment and
  disposal of medical and bio-hazardous waste
• Ensure maximum infection control and
  documentation necessary for compliance
• Route Managers carry out responsibilities
  discreetly, without interrupting operation
• Provide staff training and education to help
  protect employees and reduce risk

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Products and Services

• Sharp Disposal
• Hospitals
• Private Practices Medical and dental offices
• Home Sharp Users Patients with conditions such
  as arthritis, diabetes and cancer
• Community Collection Programs
• The CDC estimates that over 800,000 needle
  sticks occur each year among healthcare workers

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Business Model
2.
Transfer Stations
4.
1.
3.
Recycling or Permanent Disposal
Collection of regulated waste
Processing Facility

• -Supply reusable leak-and puncture-resistant
  plastic container
  -Collect containers of regulated waste at
  intervals specified by contract
• -Allows temporary hold of small loads of waste
  
  -Consolidated into full truckloads
  then transported to processing facility
• -Scanned to check for unacceptable hazardous
  materials
• -Resulting waste sent to resource recovery,
  recycling or disposal landfill

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National Coverage

• 45 Treatment stations
• 100 Transfer stations
• 1200 Route Managers
• Uniquely prepared to respond promptly to natural
  or internal disaster

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Global Presence
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Macro-economic Outlook

• Medical waste Industry historically less volatile
  during times of recession
• There is  very consistent demand for the service
  and thus a fairly consistent revenue stream based
  on the demand.
• There will always be a need to collect trash and
  dispose of it.
• Stericycle has approximately 400,000 customers,
  which are well diversified internationally
• The medical waste industry is tightly regulated
• Stricter regulations imposed on disposing medical
  waste leads to greater demand for Stericycle's
  services.
• Long-term as the baby boomers age, more treatment
  equals more waste.

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Macro-economic Outlook

• Price of Oil (hedging against risk)
• Most companies that are highly dependent on
  transportation have seen a large impact to the
  downside in their stock price due to the
  volatility of oil
• Stericycle has 1200 Route Managers
• Many Waste Services companies have implemented
  ways to hedge against high oil.
• Stericycle has a fuel surcharge program that is
  designed to minimize the damage to margins from
  high and volatile oil.

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Management Team

• Over 150 years of management experience in the
  health care, consumer, and waste management
  industries by the top 6 executives
• Mark C. MillerChairman, President, and CEO
• Richard T. KoglerExec. VP and COO
• Frank J.M. ten BrinkExec. VP and CFO
• Richard L. FossExec. VP, International
• Michael J. CollinsPresident, Return Management
  Services
• Richard J. MarascoExec. VP, MA

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Industry Overview

• Regulated medical waste is generally any medical
  waste that can cause an infectious disease
• Items such as needles, syringes, gloves and other
  medical supplies cultures and stocks of
  infectious agents and blood and blood products
• Regulated pharmaceutical waste consists of
  expired or recalled pharmaceuticals
• Global regulated waste industry size in 2008
  10.5 billion
• Stericycles global market share 10.3
  (increased from 9.3 in 2007)
• Highly regulated industry
• U.S. Environmental Protection Agency, U.S.
  Department of Transportation, U.S. Postal
  Service, Occupational Safety and Health
  Administration, Drug Enforcement Administration
• Very fragmented

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Industry Growth Factors

• Aging population
• Pressure to reduce healthcare costs
• Environmental and safety regulations
• Shift from institutional higher-cost acute-care
  settings to less expensive, smaller, offsite
  treatment alternatives
• Results in increase in the number of regulated
  waste generators that cannot treat their own
  regulated waste

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SWOT Analysis

• Strengths
• Market leader
• Broad range of services
• Established network of treatment facilities and
  transportation
• Revenue stability and noncyclical business
• Experienced senior management team
• Ability to integrate acquisitions (157 since
  1993)
• Proprietary technology (i.e. ETD)

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SWOT Analysis

• Strengths
• Diverse customer base
• Top 10 account for 7 of revenues
• No one customer accounts for more than 2 of
  revenues
• 418,000 customers
• 11,000 large-quantity generators, such as
  hospitals, blood banks and pharmaceutical
  manufacturers
• 407,000 small-quantity generators, such as
  outpatient clinics, medical and dental offices,
  long-term and sub-acute care facilities and
  retail pharmacies

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SWOT Analysis

• Weaknesses
• Subject to extensive governmental regulation,
  which is usually difficult, expensive, and
  time-consuming to comply with
• Exposure to environmental liabilities which may
  not be covered by insurance
• Patents for ETD start to expire in May 2009
• Inability to complete acquisitions may slow down
  revenue and profit growth

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SWOT Analysis

• Opportunities
• Very fragmented industry provides acquisition
  opportunities
• Growing global market
• High demand by small-quantity generators

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Income Statement
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Revenue Growth
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Revenue Breakdown
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EBIT Growth
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Balance Sheet
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DuPont Analysis
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Historical Capitalization
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DCF Analysis Assumptions

• 2009 Management Forecast in 2008 Q4 Earning Call
• Total revenue in the range of 1.16 b to 1.18b
• Net Income in the range of 165m to 179 m
• Free Cash Flow in the range of 165m to 185m

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DCF Analysis Assumptions
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DCF Model

• Equity Price 44.90 WACC 9.86

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Sensitivity Analysis

• Equity Price 41.46 53.61

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Competitors (1)
American Ecology Corp. (NasdaqGSECOL) American Ecology Corporation, through its subsidiaries, provides radioactive, polychlorinated biphenyls, and hazardous and industrial waste management services in the United States. It serves commercial and government entities, such as refineries and chemical production facilities, manufacturers, electric utilities, steel mills, medical and academic institutions, and waste broker/aggregators. The company was founded in 1952 and is headquartered in Boise, Idaho.
2. Republic Services Inc. (NYSERSG) Republic Services, Inc. provides nonhazardous solid waste collection and disposal services for commercial, industrial, municipal, and residential customers in the United States. The company primarily engages in residential collection operations that include curbside collection of refuse from small containers into collection vehicles for transport to transfer stations or directly to landfills. Its commercial and industrial collection operations include the supply of waste containers of various sizes to construction sites and rental of compactors to large waste generators, as well as the provision of waste collection services to industrial and construction facilities on contractual basis. Republic Services, Inc. was founded in 1996 and is headquartered in Phoenix, Arizona.
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Competitors (2)

• 3. Steris Corp. (NYSESTE)
• STERIS Corporation develops, manufactures, and
  markets infection prevention,
• contamination control, microbial reduction, and
  surgical and critical care support products
• and services to healthcare, pharmaceutical,
  scientific, research, industrial, and
  governmental
• customers worldwide. The company, formerly known
  as Innovative Medical Technologies, was
• founded in 1985 and is headquartered in Mentor,
  Ohio.
• 4. Waste Management, Inc. (NYSEWMI)
• Waste Management, Inc. provides integrated
  waste management services in North
• America. The company offers collection, transfer,
  recycling, disposal, and waste-to-energy
• services. The company also provides additional
  waste management services, such as in-plant
• services, methane gas recovery, and third party
  sub-contracted and administrative services. It
• serves commercial, industrial, municipal, and
  residential customers, as well as other waste
• management companies, electric utilities, and
  governmental entities. The company was
• formerly known as USA Waste Services, Inc. and
  changed its name to Waste Management, Inc.
• in 1998. Waste Management, Inc. was founded in
  1894 and is based in Houston, Texas.

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Comparables Analysis
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Multiples Analysis
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Football Chart
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Stericycle vs. SP 500
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Stericycle vs. Competitors
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RMCP Portfolio
Before Sale
After Sale

• SRCL 3.43

SRCL 1.71
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Correlation
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Recommendation

• We recommend to SELL 100 shares of our current
  position at the market price
• A re-evaluation of the position should be
  considered if the stock falls below 45 (Based on
  DCF evaluation)
• Questions?
• Comments?