After the company spent the previous couple years in the doldrums, a turnaround strategy helped spark a 73.9% rally in Stericycle's (SRCL -0.49%) shares in 2019, according to S&P Global Market Intelligence.
An increasingly competitive market for disposing of regulated waste and destroying secure information had been crimping Stericycle's performance, so management has instituted a restructuring that includes cost-savings initiatives and the sale of noncore assets to boost profitability.
The efforts remain underway, but their are signs that the turnaround is taking hold. In Q3, 2019, the company reported 6.1% and 1.6% organic sales growth in its secure information destruction and regulated waste segments, respectively, despite total companywide revenue slipping 2.6% to $833 million. Stericycle also reported adjusted EBITDA that outpaced its previous two quarters, and thanks to stronger cash flows, it paid off $83 million in debt -- its biggest debt reduction since Q3 2017. After adjusting for one-time events, earnings per share totaled $0.80 in the quarter, $0.12 better than industry watchers anticipated.
The quarterly performance allowed Stericycle to bump up the low end of its full-year adjusted earnings-per-share forecast by $0.05 to $2.55.
The company continues to sell noncore assets, and that remains a headwind to revenue growth. However, the asset sales should position Stericycle for improved ongoing earnings upside and, eventually, a return to top-line growth given recent improvements in core business revenue.
Nevertheless, the company's shares are trading at the higher end of their five-year range on both forward price-to-sales and forward price-to-earnings ratios, suggesting investors might need to see additional strengthening in its business to justify its valuation following its dramatic run-up last year.