Back to top

Image: Bigstock

STERIS (STE) Hits a New 52-Week High: What's Driving It?

Read MoreHide Full Article

Shares of STERIS plc (STE - Free Report) reached a new 52-week high of $249.06 on Apr 1, before closing the session marginally lower at $248.

Over the past year, this Zacks Rank #3 (Hold) stock has gained 26.6% compared with 3% growth of the industry and 12% rise of the S&P 500 composite.

STERIS is witnessing an upward trend in its stock price, prompted by robust performance across three of STERIS’ reporting segments. The seamless integration process of Cantel Medical, ahead of expectations, buoys optimism. Stiff competition and pricing pressure are the major downsides.

Key Growth Catalysts

Strong Segmental Business Amid Pandemic: In the third quarter of fiscal 2022, revenues improved 49.5% year over year, while organic revenues at constant currency or CER rose 9% year over year. Meanwhile, revenues at Healthcare rose 45.6% year over year (up 5% on a CER organic basis) on an 84% increase in consumable revenues, a 19% increase in service revenues and a 47% improvement in capital equipment revenues. Revenues at Applied Sterilization Technologies improved 22.6% year over year (up 18% on a CER organic basis).

Revenues in the Life Sciences segment rose 15.4% year over year (up 9% on a CER organic basis) on 23% growth in consumable revenues, a 5% rise in capital equipment revenues and a 13% increase in service revenues.

STERIS' Infection Prevention and Sterilization Wing Grow Well Globally: With the acquisition of U.K.-based outsourced sterilization services provider Synergy Health, STERIS has become the new global leader in infection prevention and sterilization. The company is currently providing improved healthcare services to medical device companies, pharma companies, hospitals and other healthcare facilities across the globe.

Zacks Investment ResearchImage Source: Zacks Investment Research

The company continues to benefit from the acquisition of Synergy Health. The consolidation, since its inception, has boosted STERIS' presence in the international markets as it combines STERIS’ strong presence in North America with Synergy's solid footprint across Europe. It has also provided STERIS an opportunity to better serve the emerging markets of Asia-Pacific and Latin America.

Progress in Healthcare and Pharmaceutical Industries: The bulk of STERIS’ revenues are obtained from the healthcare and pharmaceutical industries. The aging of the global population primarily drives growth in these industries as an increasing number of individuals are entering their prime healthcare consumption years.

Further, these industries depend on advancements in healthcare delivery, acceptance of new technologies, government policies and general economic conditions. With life expectancy on the rise globally, a larger aging population increases the demand for medical procedures. This, in turn, translates into higher consumption of single-use medical devices and surgical kits processed by STERIS.

Downsides

Competitive Landscape: STERIS competes for pharmaceutical, research and industrial customers against several large companies that have robust product portfolios and global reach as well as several small companies with limited product offerings and operations in one or a few countries. In the Healthcare segment, STERIS’ notable competitors include 3M, Belimed, Ecolab, Getinge, Go Jo, Johnson & Johnson, Kimberly-Clark, Skytron and Stryker.

Pricing Pressure: STERIS purchases raw materials, fabricated and other components, and energy supplies from various suppliers. Availability and price of raw materials and energy supplies are subject to volatility. These are influenced by worldwide economic conditions, speculative action, world supply and demand balances, inventory levels, availability of substitute materials, currency exchange rates, anticipated or perceived shortages and various other factors.

Key Picks

Some better-ranked stocks in the broader medical space are McKesson Corporation (MCK - Free Report) , AMN Healthcare Services, Inc. (AMN - Free Report) and Bio-Rad Laboratories, Inc. (BIO - Free Report) .

McKesson, carrying a Zacks Rank #2 (Buy), reported third-quarter fiscal 2022 adjusted earnings per share (EPS) of $6.15, which beat the Zacks Consensus Estimate of $5.38 by 14.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

McKesson has a long-term earnings growth rate of 11.8%. MCK has gained 57.7% compared with the industry’s 9.6% growth in the past year.

AMN Healthcare, flaunting a Zacks Rank #1, has a long-term earnings growth rate of 16.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 19.5%, on average.

AMN Healthcare has outperformed its industry in the past year. AMN has gained 40.5% versus the 53.9% industry decline.

Bio-Rad reported fourth-quarter 2021 adjusted EPS of $3.21, which surpassed the Zacks Consensus Estimate by 11.9%. It currently has a Zacks Rank #2.

Bio-Rad has an earnings yield of 2.3% versus the industry’s negative yield. BIO surpassed earnings estimates in the trailing four quarters, the average surprise being 66.9%.