STERIS plc (STE Quick QuoteSTE - Free Report) has been gaining from continued strength across its operating segments. The company achieved substantial cost synergies in the first quarter of fiscal 2023 quarter, instilling optimism. The ongoing integration of Cantel Medical is expected to strengthen STERIS’ Endoscopy offerings. However, a challenging macroeconomic environment and stiff competition raise apprehension.

In the past year, shares of this Zacks Rank #3 (Hold) company have dropped 1.7% against the industry’s 22.2% decline and the S&P 500’s 3.2% fall.

The renowned provider of infection prevention, as well as other procedural products and services, has a market capitalization of $21.25 billion. Its earnings surpassed estimates in the trailing three quarters and met in one, the average surprise being 4.9%.

The company’s projected earnings growth rate of 13.3% for the next year compares with the industry’s growth projection of 22.2% and the S&P 500’s estimated 3.9% increase.

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Let’s delve deeper.

Factors at Play

Q1 Upsides: STERIS’ first-quarter fiscal 2023 constant currency organic revenue increased 6% year over year. The company registered strong performances across three of its reporting segments in the reported quarter. Growth was driven by organic volume and 240 basis points favorable impact of price. The net impact of acquisitions and divestitures added approximately $151 million to the quarter’s revenues. Further, the company achieved roughly $20 million of cost synergies in the quarter under review. Expansion in gross margin is an added advantage.

Strong Segmental Performance: STERIS’ fiscal first-quarter revenues improved 19% year over year. Revenues at Healthcare arm rose 4% on a CER organic basis driven by a 22% increase in consumable revenues, a 19% rise in capital equipment revenues and a 9% increase in service revenues. Meanwhile, revenues at Applied Sterilization Technologies (AST) segment improved 10% year over year on a CER organic basis led by increased demand from medical device and biopharma customers.

The Life Sciences segment, too, registered revenue growth of 10% on a CER organic basis year over year. The upside was driven by a 5% growth in consumable revenues, a 24% rise in capital equipment revenues and flat service revenues.

Progress in Healthcare and Pharmaceutical Industries: STERIS derives a bulk of revenues from the healthcare and pharmaceutical industries. The company’s acquisition of Cantel Medical, a global provider of infection prevention products and services, has strengthened its performance in this space. The Cantel Medical integration is expected to add a full suite of high-level disinfection consumables, capital equipment and services as well as additional single-use accessories to STERIS’ Endoscopy offerings. This acquisition added approximately $40 million to the company’s fiscal 2022 revenues, raising optimism.

Downsides

Tough Competition: STERIS competes for pharmaceutical, research and industrial customers against several large and small companies. The company expects to face continued competition in the future as new infection prevention, sterile processing, contamination control, gastrointestinal and surgical support products and services enter the market.

Macroeconomic Woes: The current macroeconomic environment across the globe has adversely affected STERIS’ financial operations. Supply chain disruptions are slowing the company’s ability to ship capital equipment. In its earnings call for first-quarter of fiscal 2023, the company noted that it anticipates additional headwinds from inflation on raw materials in the coming months.

Pricing Pressure: STERIS purchases raw materials and energy supplies from various suppliers, the availability and price of which are subject to volatility. Changes in regulatory requirements, unavailability or short supply of these products might disrupt STERIS’ AST operations, in addition to other adverse consequences.

Estimate Trends

In the past 60 days, the Zacks Consensus Estimate for STERIS’ earnings has moved 1.2% down to $8.60.

The Zacks Consensus Estimate for fiscal 2023 revenues is pegged at $4.98 billion, suggesting an 8.7% growth from the fiscal 2022 reported number.

Key Picks

A few better-ranked stocks in the broader medical space that investors can consider are AMN Healthcare Services, Inc. (AMN Quick QuoteAMN - Free Report) , Molina Healthcare, Inc. (MOH Quick QuoteMOH - Free Report) and Patterson Companies, Inc. (PDCO Quick QuotePDCO - Free Report) .

AMN Healthcare has a long-term earnings growth rate of 3.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 15.7%, 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.

AMN Healthcare has outperformed its industry in the past year. AMN has lost 0.4% against the industry’s 27.6% fall.

Molina Healthcare has a long-term earnings growth rate of 16.4%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 3.2%, on average. It currently carries a Zacks Rank #2 (Buy).

Molina Healthcare has outperformed its industry in the past year. MOH has gained 30.7% against the industry’s 30.6% growth.

Patterson Companies has an estimated long-term growth rate of 7.9%. The company’s earnings surpassed estimates in all the trailing four quarters, the average beat being 16.5%. It currently flaunts a Zacks Rank #2.

Patterson Companies has outperformed its industry in the past year. PDCO has gained 1.6% compared with the industry’s 4.1% fall in the past year.