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Here's Why You Should Add STERIS (STE) to Your Portfolio
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STERIS plc (STE - Free Report) is gaining from elevated consumer demand and rebound in procedure volumes. The ongoing integration efforts for Cantel Medical buoy optimism. Further, the raised fiscal 2022 outlook is encouraging. However, stiff competition and macroeconomic problems remain concerns.
In the past six months, shares of this Zacks Rank #2 (Buy) company have gained 9.1% against the industry’s 2.3% fall. The S&P 500 rose 6.1% during the same period.
The renowned provider of infection prevention as well as other procedural products and services has a market capitalization of $21.68 billion. The company projects 12.7% growth for the next year and expects to maintain strong segmental performance. Further, it surpassed estimates in three of the trailing four quarters and missed in one, delivering a surprise of 9.54%, on average.
Factors at Play
Strong Segmental Business: In the first quarter of fiscal 2022, revenues improved 44.8% year over year while organic revenues at constant currency or CER rose 21% year over year.
Meanwhile, revenues at Healthcare rose 50.8% year over year on a 147% increase in consumable revenues, a 31% rise in service revenues and an 18% improvement in capital equipment revenues. Revenues at AST improved 37.1% on a reported basis and 27% at CER organic basis, driven by increased demand from medical device customers during the reported quarter.
Progress in Healthcare and Pharmaceutical Industries: The bulk of STERIS’ revenues are obtained from the healthcare and pharmaceutical industries. Growth in these industries is primarily driven by the aging of the global population, as an increasing number of individuals are entering their prime healthcare consumption years. In June, STERIS concluded the acquisition of Cantel Medical, which was initiated in January 2021. Cantel Medical is a global provider of infection prevention products and services, primarily to endoscopy and dental customers. The integration is expected to strengthen and expand STERIS’ Endoscopy offerings, adding a full suite of high-level disinfection consumables, capital equipment and services as well as additional single-use accessories.
Image Source: Zacks Investment Research
Upbeat Guidance: STERIS has raised its financial guidance for fiscal 2022. The company expects revenues to be nearly $4.6 billion compared to the May-announced figure of $4.5 billion. Constant currency organic revenue growth is projected in the range of 10-11% versus the previous expectation of 8-9% for fiscal 2022, reflecting revenue recovery across the business, with specific strength in Healthcare and AST.
Adjusted earnings per diluted share are anticipated in the band of $7.60-$7.85 compared to the previously-announced guidance of $7.40-$7.65.
Downsides
Competitive Landscape: The company expects to face continued competition as new infection prevention, sterile processing, contamination control, gastrointestinal and surgical support products and services enter the market. Moreover, management believes STERIS’ existing or potential competitors might have greater resources than it, enabling them to develop and commercialize products faster than STERIS.
Macroeconomic Problems: The current macroeconomic environment across the globe has affected STERIS’ financial operations. Governments and insurance companies continue to look for ways to contain the rising cost of healthcare. This might put pressure on players in the healthcare industry, with STERIS being no exception.
Estimate Trends
STERIS is witnessing a positive estimate revision trend for the current year. In the past 90 days, the Zacks Consensus Estimate for earnings has moved 2.67% north to $7.70.
The Zacks Consensus Estimate for second-quarter fiscal 2022 revenues is pegged at $1.16 billion, suggesting 53.6% growth from the year-ago quarter’s reported number.
Image: Bigstock
Here's Why You Should Add STERIS (STE) to Your Portfolio
STERIS plc (STE - Free Report) is gaining from elevated consumer demand and rebound in procedure volumes. The ongoing integration efforts for Cantel Medical buoy optimism. Further, the raised fiscal 2022 outlook is encouraging. However, stiff competition and macroeconomic problems remain concerns.
In the past six months, shares of this Zacks Rank #2 (Buy) company have gained 9.1% against the industry’s 2.3% fall. The S&P 500 rose 6.1% during the same period.
The renowned provider of infection prevention as well as other procedural products and services has a market capitalization of $21.68 billion. The company projects 12.7% growth for the next year and expects to maintain strong segmental performance. Further, it surpassed estimates in three of the trailing four quarters and missed in one, delivering a surprise of 9.54%, on average.
Factors at Play
Strong Segmental Business: In the first quarter of fiscal 2022, revenues improved 44.8% year over year while organic revenues at constant currency or CER rose 21% year over year.
Meanwhile, revenues at Healthcare rose 50.8% year over year on a 147% increase in consumable revenues, a 31% rise in service revenues and an 18% improvement in capital equipment revenues. Revenues at AST improved 37.1% on a reported basis and 27% at CER organic basis, driven by increased demand from medical device customers during the reported quarter.
Progress in Healthcare and Pharmaceutical Industries: The bulk of STERIS’ revenues are obtained from the healthcare and pharmaceutical industries. Growth in these industries is primarily driven by the aging of the global population, as an increasing number of individuals are entering their prime healthcare consumption years. In June, STERIS concluded the acquisition of Cantel Medical, which was initiated in January 2021. Cantel Medical is a global provider of infection prevention products and services, primarily to endoscopy and dental customers. The integration is expected to strengthen and expand STERIS’ Endoscopy offerings, adding a full suite of high-level disinfection consumables, capital equipment and services as well as additional single-use accessories.
Upbeat Guidance: STERIS has raised its financial guidance for fiscal 2022.
The company expects revenues to be nearly $4.6 billion compared to the May-announced figure of $4.5 billion. Constant currency organic revenue growth is projected in the range of 10-11% versus the previous expectation of 8-9% for fiscal 2022, reflecting revenue recovery across the business, with specific strength in Healthcare and AST.
Adjusted earnings per diluted share are anticipated in the band of $7.60-$7.85 compared to the previously-announced guidance of $7.40-$7.65.
Downsides
Competitive Landscape: The company expects to face continued competition as new infection prevention, sterile processing, contamination control, gastrointestinal and surgical support products and services enter the market. Moreover, management believes STERIS’ existing or potential competitors might have greater resources than it, enabling them to develop and commercialize products faster than STERIS.
Macroeconomic Problems: The current macroeconomic environment across the globe has affected STERIS’ financial operations. Governments and insurance companies continue to look for ways to contain the rising cost of healthcare. This might put pressure on players in the healthcare industry, with STERIS being no exception.
Estimate Trends
STERIS is witnessing a positive estimate revision trend for the current year. In the past 90 days, the Zacks Consensus Estimate for earnings has moved 2.67% north to $7.70.
The Zacks Consensus Estimate for second-quarter fiscal 2022 revenues is pegged at $1.16 billion, suggesting 53.6% growth from the year-ago quarter’s reported number.
Other Key Picks
A few other similar-ranked stocks from the broader medical space are Alcon Inc (ALC - Free Report) , McKesson Corporation (MCK - Free Report) and Biolase, Inc. (BIOL - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.
Alcon has an estimated long-term earnings growth rate of 18%.
McKesson has an estimated long-term earnings growth rate of 8%.
Biolase has a projected long-term earnings growth rate of 15%.