Derek Ho

RCMP

12/09/2004

Recommendation: Hold

STERICYCLE is…•a regulated medical waste management company whose services and operations are comprised of collection, transportation, treatment, disposal and recycling, together with related training and education programs, consulting services and product sales.

•focused on management of infection control and a safer, more compliant workspace

Medical Waste is…any solid waste that is generated in the diagnosis, treatment, or immunization of human beings or animals, in research pertaining thereto, or in the production or testing of biologicals.

Contract and Service AgreementsHave long-term contracts and negotiate individual service agreements to each customer. Each agreement specifies customer’s obligation to pack medical waste in approved containers.

BUSINESS DYNAMIC

•Corporate headquarters located in Lake Forest, Illinois

•41 facilities in 25 states, Puerto Rico, Canada, and Mexico

•Growing in Australia, Asia, and South America

PORTFOLIO POSITION

•Bought 400 shares on 03/21/2001 at $19.47

•Cost Basis of $7,788.00

•Current Price is $45.88

•As of 12/9/04, Stericycle accounts for 6% of our portfolio

•Over the last 3 years, there has been a 136% gain.

STOCK PERFORMANCE

As of 12/19/04

•Current Price: $45.88

•EPS: $1.72

•This quarter’s estimates: $.45-.48 per share

•P/E: 27.36

•Beta: 0.156

MACROECONOMIC FACTORS

•Major Competitors: 1. Waste Management

2. Republic Services

3. American Ecology Corporation

•As healthcare needs increase, medical waste will become an important factor.

•Controversy over rising healthcare costs

•Baby boom generation

•Diverse Customer Base

STOCK PERFORMANCE vs. American Ecology Corporation (ECOL)

Possible Reasons for Difference:

•Slightly different industry

•ECOL a smaller company

STOCK PERFORMANCE vs. Waste Management Inc. (WMI)

Possible Reasons for Difference:

•WMI has fraud charges due to earnings overstatement

•Stock price depends on other industries also

STERICYCLE’S BUSINESS

Medical Waste Industry is highly regulated by the following Federal groups:

1. Occupational Society Health Administration (OSHA)

2. The Department of Transportation (DOT)

3. Nuclear Regulatory Commission

4. Food and Drug Administration (FDA)

5. US Postal Service (USPS)

6. Environmental Protection Agency (EPA)

7. Also regulated at state-level

STERICYCLE’S BUSINESS (Cont.)• The Stericycle network includes over 100+

waste collection/transfer facilities and over 40+ treatment and disposal facilities throughout North America.

• Focus for future:

1. Revenue Growth – sharp containers

2. Profit Growth

3. Service Innovation – Consulting and HIPPA (1996)

Stericycle’s Business (Cont.)

•Offers products such as alcohol pads, gauze sponges, needle stick safety syringes, and personal protective equipment•Auto enclave Technology and Incineration Technology•Electro-thermal Deactivation (ETD) Technology

• Expansion into international markets through Expansion into international markets through acquisitions, joint ventures and/or by licensing acquisitions, joint ventures and/or by licensing proprietary technologyproprietary technology and selling and selling associated associated equipmentequipment..

• 6 Foreseeable Acquisitions (new ETD facility in 6 Foreseeable Acquisitions (new ETD facility in Japan- now 3)Japan- now 3)

• Reduce debt (about half of 2003 remaining cash Reduce debt (about half of 2003 remaining cash used to extinguish)used to extinguish)

Stericycle’s Growth Strategy

Valuation

DCF Analysis

PE Analysis

See Excel

RISKS

•Subject to extensive governmental regulation

•Handling and treatment of hazardous waste carries risk of personal injury

•Aggressive pricing by competitors and entrance of new competitors drive down profits

•Expansion into foreign countries expose firm to new growth obstacles

•Oil prices skyrocketing-highly sensitive to transportation costs

Stericycle in the News

“Third Quarter Earnings rose 23%”

“Stericycle Announces Exercise of Option to Redeem $50.9 Million of Senior Subordinated Debt”

October 18, 2004

Stericycle (Business Wire)

Recommendation

•HOLD 400 Shares

•Highly Regulated Industry

•High Expectation for Growth

•Industry leader

Questions?