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Here's Why You Should Retain STERIS (STE) Stock For Now

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STERIS plc (STE - Free Report) is well poised for growth in the coming months backed by elevated demand from medical device customers.  The seamless integration process of Cantel Medical buoys optimism over the stock. Further, the bullish fiscal 2022 outlook is encouraging. However, stiff competition and macroeconomic problems are concerns.

In the past year, shares of this Zacks Rank #3 (Hold) company have gained 18.8% compared with the industry’s 12.1% rise. The S&P 500 rose 30.6% during the same period.

The renowned provider of infection prevention as well as other procedural products and services has a market capitalization of $23.24 billion. The company projects 12.6% 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 6.88%, on average.

Riding on current business growth and bullish near-term prospects, the company is worth holding on to for now.

Factors at Play

Impressive Q2 Results: STERIS exited second-quarter fiscal 2022 on a bullish note with better-than-expected results. The year-over-year growth in revenues and earnings looks encouraging. Solid revenue growth across three of its reporting segments amid the post-pandemic recovery contributed to the top line. Elevated demand from medical device customers drove CER organic revenues growth in the Applied Sterilization Technologies segment. The seamless integration process of Cantel Medical buoys optimism for the stock.

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.

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In June, STERIS acquired Cantel Medical, a global provider of infection prevention products and services, primarily catering to endoscopy and dental customers. The integration strengthened and expanded STERIS’ Endoscopy offerings, adding a full suite of high-level disinfection consumables, capital equipment and services as well as additional single-use accessories.

Bullish Guidance: STERIS expects constant currency organic revenue growth in the range of 10-11% for fiscal 2022. Adjusted earnings per diluted share are anticipated in the band of $7.60-$7.85.

Downsides

On the flip side, some factors have been deterring the stock’s rally of late.

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, which might enable them to develop and commercialize products at a faster pace than STERIS. This might hamper STERIS’ growth.

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 build 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 1.32% north to $7.70.

The Zacks Consensus Estimate for third-quarter fiscal 2022 revenues is pegged at $1.21 billion, suggesting 49.7% growth from the year-ago quarter’s reported number.

Key Picks

A few better-ranked stocks from the broader medical space are Thermo Fisher Scientific Inc. (TMO - Free Report) , Laboratory Corporation of America Holdings, or LabCorp (LH - Free Report) and Medpace Holdings, Inc. (MEDP - Free Report) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher Scientific, carrying a Zacks Rank #2 (Buy), reported third-quarter 2021 adjusted earnings per share of $5.76, which surpassed the Zacks Consensus Estimate by 23.3%. Revenues of $9.33 billion outpaced the Zacks Consensus Estimate by 12%.

Thermo Fisher has an estimated long-term growth rate of 14%. TMO surpassed estimates in the trailing four quarters, the average surprise being 9.02%.

LabCorp reported third-quarter 2021 adjusted EPS of $6.82, which surpassed the Zacks Consensus Estimate by 42.9%. Revenues of $4.06 billion outpaced the Zacks Consensus Estimate by 13.4%. It currently carries a Zacks Rank #2.

LabCorp has an estimated long-term growth rate of 10.6%. LH surpassed  estimates in the trailing four quarters, the average surprise being 25.7%.

Medpace reported third-quarter 2021 adjusted EPS of $1.29, surpassing the Zacks Consensus Estimate by 20.6%. Revenues of $295.57 million beat the Zacks Consensus Estimate by 1.2%. It currently carries a Zacks Rank #1.

Medpace has an estimated long-term growth rate of 16.4%. MEDP surpassed estimates in the trailing four quarters, the average surprise being 11.9%.