Stericycle (SRCL): Clean up in medical waste

"Add them up, and the company has won the business of over 430,000 customers around the world. We're not just talking needles either. Stericycle also collects used test tubes and all types of contaminated materials.

"Logistically, it takes a large footprint to generate a fair return in this business -- servicing remote facilities far off established routes just isn't profitable. Stericycle's network is second to none, which is why the firm's operating margins of 27% are more than quadruple the industry average.

"Stericycle's safety record and environmentally-friendly waste treatment system speak for themselves. So customers don't hesitate to sign up for 3-5 year contracts that renew automatically -- which keeps retention rates consistently above 95%.

"With the firm adding new customers and keeping old ones, revenue has soared from $67 million to $1.1 billion during the past decade. Meanwhile, profits have doubled every 2.2 years on average and jumped +28% last year despite the recession.

"Remarkably, the firm has either met or exceeded earnings expectations every single quarter since its IPO in 1996. But this growth story is still unfolding.

"Ten years ago, large accounts represented two-thirds of Stericycle's sales, and small customers just one-third. Those percentages have now flip-flopped, and the change bodes well. Smaller clients have growth potential of their own, which means more waste going forward.

"They also have less power at the bargaining table, so prices tend to be higher -- which is why gross margins have climbed from 21% to 47%.

"And there are still plenty of potential customers that haven't yet been reached. It may be the industry's biggest player, but Stericycle only controls 11% of this fragmented $10 billion market.

"Most companies have two big fears: Either its customers abandon them in favor of a rival, or they stop buying altogether. Stericycle is safe on both grounds.

"There will always be biohazardous materials that need to be safely collected and disposed of, and heavy regulatory oversight discourages new competitors from joining this race.

"Even if they did, any future rivals will be hard-pressed to duplicate Stericycle's vast network, low prices, and patent-protected waste treatment process.

"Because the shares held their ground during the sell-off, they have been left behind in this year's bounce-back rally and still have room to climb nearly 30% on the way to our 'Fair Value' estimate in the upper $60s."

Steven Halpern's TheStockAdvisors.com offers a free daily overview of the favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.