Chris McIntyre thinks Sotera is an incredible business at a good valuation $SHC
Mar 7, 2023
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Chris McIntyre returns to discuss Sotera Healthcare, highlighting its strong business potential, growth algorithm, and undervalued stock. The conversation also touches on historical legal liabilities, differences between Georgia and Illinois risks, controlling shareholders' plans, and M&A possibilities.
Sotera Healthcare excels as a stable top-line grower with high margins and minimal cycle impact.
Legal liabilities and settlements pose complex challenges; jurisdictional differences impact outcomes and business operations.
Private equity ownership in Sotera presents M&A opportunities, offering strategic synergies and revenue potential.
Deep dives
Dilupa: Innovative Company Data Source
Dilupa, founded by a former hedge fund analyst, provides highly accurate public company data for over 3,000 companies. Offering granularity, KPIs, and non-GAAP adjustments, Dilupa stands out with superior data depth and accuracy compared to other tools. Through AI algorithms, customized historical company data is efficiently collected, aiding clients in making informed decisions. The Excel plugin allows easy model updates, enabling clients to explore more opportunities efficiently.
Sotera Healthcare: Resilient Business Growth
Sotera Healthcare, represented by the ticker SHC, exhibits a compelling recovery story despite a legal liability setback. Beginning with a significant stock drop due to legal issues, the company has recovered substantially, showing 100% growth year-to-date. Positioned as a high-quality business, Sotera remains a stable top-line grower with 50% margins and minimal economic cycle impact. Offering a reliable growth catalyst and stable profitability, Sotera presents a promising investment opportunity within the healthcare sector.
Ethylene Oxide Legal Liabilities and Resolution
Ethylene oxide emissions from certain sterilization plants have led to legal challenges, particularly in Illinois and Georgia. These personal injury litigations emerged due to regulatory concerns around ethylene oxide exposure. While Illinois faced punitive actions, showcasing a plaintiff-friendly environment, Georgia and New Mexico facilities encountered varying levels of legal scrutiny. The legal situation underscores the complexity of managing environmental risks in the sterilization industry.
Overview of Legal Settlements and Regulatory Burdens
The podcast discusses the impact of legal settlements and regulatory burdens on a company facing legal liabilities. It highlights the influence of plaintiff-friendly jurisdictions like Illinois on legal cases, emphasizing the significance of causality in legal proceedings. The settlement process and potential outcomes in different jurisdictions, such as Georgia, are detailed, shedding light on the complexities of legal battles and the implications for businesses.
Private Equity Ownership and M&A Opportunities
The episode delves into the private equity ownership structure of a company and the potential for mergers and acquisitions (M&A) as catalysts for growth. It analyzes the strategic possibilities of private equity firms exiting and explores the synergies and revenue potential through M&A activities. The discussion encompasses the competitive dynamics, customer relationships, and the impact of legal risks on pricing strategies within the industry.
Chris McIntyre returns to the podcast to discuss Sotera Healthcare (SHC), why he thinks it's such a good business, and why he thinks the stock is still undervalued even after a big run in the wake of putting their legal liabilities (largely) behind them.
Chapters
0:00 Intro
2:15 Sotera Overview
5:30 What makes Sotera such a good business?
14:30 Why it's so unlikely a new competitor can enter the space
19:55 Discussing Sotera's "growth algorithm"
23:30 Sotera's multiple / valuation
32:00 Historical legal liabilities overview
38:45 The "science" behind the legal liabilities
43:15 SHC's settlement and putting the legal liabilities behind them
49:00 Why Georgia is not the same risk as Illinois was
53:35 Sotera's controlling shareholders and their plans for the company
56:00 M&A and roll up possibilities
1:00:45 Closing thoughts
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