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Will Stericycle (SRCL) Q3 Earnings Miss Despite Solid Buy?

Waste management firm Stericycle, Inc.SRCL is scheduled to report its third-quarter 2015 results after the closing bell on Oct 22. In the last reported quarter, adjusted earnings were in sync with the Zacks Consensus Estimate. Let's see how things are shaping up for this announcement.

Key Factors in the Third Quarter

During the quarter, Stericycle acquired information destruction services provider Shred-it International for $2.3 billion in cash. The transaction is likely to be completed in the fourth quarter of 2015. With Shred-it on board, Stericycle is expected to enhance its core compliance solutions portfolio and offer specialized services, thereby augmenting its value proposition to clients.

The transaction is anticipated to result in cost synergies to the tune of $20-$30 million by 2018, leading to accretive earnings. Earnings per share is expected to increase by at least 10% in 2016 and by the high-teens in 2018, generating robust cash flow and over $1 billion in EBITDA in 2016 through improved margins and debt repayment.

International growth rates are expected to accelerate due to increasing customer adoption of multiple services and expansion into new lines of business. The global acquisition strategy increases Stericycle's customer base, by providing a long-term growth platform for selling multiple services. Whether the customer is a large hospital system or a retail chain, Stericycle provides multiple services to help them improve their operations and achieve their goals. As customers adopt these multiple services, they can almost triple their revenues in the long run. This in turn leads to incremental revenues for Stericycle.

At the same time, Stericycle is focused on increasing its small-quantity (SQ) customer base, as they generate higher gross margins than the large-quantity (LQ) customers. In addition, Stericycle offers multiple service offerings to its customers, which add to the value of each account. For its SQ customers, the services include Steri-Safe and clinical compliance offerings and for LQ customers - Bio Systems and Rx Waste Compliance. These efforts are likely to improve its profitability in the soon--to-be-reported quarter.

Earnings Whispers

Despite solid inherent growth potential, our proven model does not conclusively show that Stericycle is likely to miss earnings this quarter as it lacks the key ingredients for a success recipe.

Zacks ESP: Expected Surprise Prediction or Earnings ESP , which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at -1.70%. This indicates a likely earnings miss for the shares.

Zacks Rank: Stericycle's Zacks Rank #3 (Hold) when combined with negative ESP reduces the predictive power of ESP. Note that stocks with a Zacks Ranks of #1 (Strong Buy), #2 (Buy) and #3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and #5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Allegiant Travel Company ALGT , earnings ESP of +0.76% and a Zacks Rank #2.

The Chubb Corporation CB , earnings ESP of +3.57% and a Zacks Rank #1.

Capital One Financial Corporation COF , earnings ESP of +2.08% and a Zacks Rank #3.

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CAPITAL ONE FIN (COF): Free Stock Analysis Report

CHUBB CORP (CB): Free Stock Analysis Report

STERICYCLE INC (SRCL): Free Stock Analysis Report

ALLEGIANT TRAVL (ALGT): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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