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STERIS (STE) Up 8% Since Q3 Earnings: What's Driving It?

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Shares of STERIS plc (STE - Free Report) have rallied 8% versus the industry's 4.7% rise since its third-quarter fiscal 2022 earnings release on Feb 8.

The renowned provider of infection prevention as well as other procedural products and services has a market capitalization of $24.94 billion. Its earnings for third-quarter fiscal 2022 surpassed the Zacks Consensus Estimate by 8.7%.

This Zacks Rank #2 (Buy) stock has a VGM Score of D. VGM Score helps identify stocks with the most attractive value, best growth and the most promising momentum.

The rally was largely driven by strength across the Healthcare, Applied Sterilization Technologies (AST) and Life Sciences segments. A strong position in the healthcare and pharmaceutical industries continues to favor the stock. An overall promising solvency position also instills investor confidence.

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Let’s take a quick look at the important catalysts to understand this positive trend.

Key Growth Drivers

Strong Segmental Business: In the fiscal third quarter, revenues at STERIS’ Healthcare segment rose 45.6% year over year (up 5% on a CER organic basis) on an 84% increase in consumable revenues, a 19% rise in service revenues and a 47% improvement in capital equipment revenues. Revenues at the AST segment improved 22.6% year over year (up 18% on a CER organic basis). The CER organic revenues in the AST arm were driven by higher demand from the medical device and biopharma customers.

Further, revenues at 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.

Progress in Healthcare and Pharmaceutical Industries: The bulk of STERIS’ revenues are obtained from the healthcare and pharmaceutical industries, where growth is primarily driven by the aging of the global population. With life expectancy on the rise globally, a larger aging population increases demand for medical procedures. This, in turn, translates into higher consumption of single-use medical devices and surgical kits processed by STERIS. The notable acquisitions of Cantel Medical and Key Surgical have better positioned the company to meet the needs of its customers.

The integration of Cantel Medical 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. Meanwhile, the Key Surgical buyout strengthens, complements and expands STERIS’ product offerings and global reach.

Strong Solvency Position: STERIS exited the third quarter of fiscal 2022 with cash and cash equivalents of $359.1 million. Meanwhile, total debt (short and long-term) at the end of the fiscal third quarter was $3.3 billion, much higher than the current cash and cash equivalents figure. However, if we go by the company's near-term payable debt level of $128 million, it is pretty low compared to cash in hand. This is good news for its solvency level, at least during the pandemic when companies are majorly facing manufacturing and supply halts.

Favorable Growth Parameters

For 2022, STERIS has an expected earnings growth rate of 11.27% compared with the industry’s projected 9.26% growth. Meanwhile, revenues are expected to grow 7.45% on a year-over-year basis compared with the industry’s estimated 10.76% growth.

STERIS has a current cash flow growth rate of 10.23% compared with the industry’s growth rate of 14.28%.

STERIS raised its dividend five times in the past five years, with its payout growing 8.79% over the period. STE’s payout ratio is currently at 23% of earnings.

Other Key Picks

A few other top-ranked stocks in the broader medical space are Owens & Minor, Inc. (OMI - Free Report) , Abiomed, Inc. (ABMD - Free Report) and McKesson Corporation (MCK - Free Report) .

Owens & Minor has a long-term earnings growth rate of 8.8%. Owens & Minor’s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 29.5%, on average. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Owens & Minor has outperformed the industry over the past year. OMI has gained 15.3% against a 15.6% industry decline in the said period.

Abiomed has an estimated long-term growth rate of 20%. Abiomed’s earnings surpassed estimates in the trailing four quarters, the average surprise being 9.2%. It currently carries a Zacks Rank #2.

Abiomed has underperformed the industry over the past year. ABMD has lost 5.5% against the industry’s 1% growth over the past year.

McKesson has a long-term earnings growth rate of 11.8%. McKesson’s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 20.6%, on average. It presently carries a Zacks Rank #2.

McKesson has outperformed the industry over the past year. MCK has gained 69.9% in the said period compared with 9.7% growth of the industry.

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Owens & Minor, Inc. (OMI) - free report >>

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ABIOMED, Inc. (ABMD) - free report >>

STERIS plc (STE) - free report >>