Large Domestic Acquisition Increases SRCL Price Target $13

Stericycle, Inc. SRCL announced a large deal yesterday to acquire Healthcare Waste Services. The acquisition if approved due to the Hart-Scott-Rodino Antitrust Act will cement its dominant position in collection and disposal of regulated medical waste. In a research report Wunderlich Securties writes,"On September 29, SRCL announced its plan to acquire Healthcare Waste Solutions, Inc. (HWS) for $245mm in cash. We estimate that HWS' annual revenues and EBITDA are around $60mm-$70mm and $18mm-$21mm, respectively. This translates into an EBITDA purchase multiple of 13.6-11.7 times versus SRCL's current FY10 valuation multiple of 16.7 times. Other environmental services companies are trading at 7.6 times and healthcare services are at 8.6 times. Our revised $63.00 price target assumes that SRCL will continue to command a premium to the waste group at a five-year average of 6.5 times, reflecting the slowing domestic organic growth. Our target price implies FY11 EV/EBITDA of 13.9 times and is slightly above the estimated purchase multiple for HWS. On a FY11 FCF yield basis, SRCL is trading at 4.4% versus the waste group of 7.5%." SRCL closed Wednesday at $69.75