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Here's Why Investors Should Retain STERIS (STE) Stock for Now
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STERIS plc (STE - Free Report) has been gaining from strong segmental growth. The integration of Cantel Medical continued successfully, strengthening 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 19.3% compared with the industry’s 26.2% decline and the S&P 500’s 17.3% fall.
The renowned provider of infection prevention, other procedural products and services has a market capitalization of $18.27 billion. Its earnings surpassed estimates in the trailing three quarters and met in one, the average surprise being 2.6%.
The company’s projected earnings growth rate of 11% for the next year compares with the industry’s growth projection of 16.6%.
Let’s delve deeper.
Factors at Play
Q2 Upsides: STERIS’ second-quarter fiscal 2023 constant currency organic revenue increased 7% year over year, driven by volume and 290 basis points favorable impact of price. The integration of Cantel Medical continued successfully. STERIS achieved approximately $15 million of cost synergies in the fiscal second quarter, bringing the first-half total to about $35 million. STERIS is on track to achieve its stated goal of approximately $50 million of cost synergies in fiscal 2023.
Strong Segmental Performance: In the second quarter of fiscal 2023, organic revenues increased 7% year over year, led by robust sales across the company’s Healthcare and AST segments. Organic revenues at Healthcare rose 7%, suggesting a 5% improvement in capital equipment revenues and a 1% increase in service revenues. Revenues at AST rose 19% organically, driven by increased demand from medical device and biopharma customers. Within Life Sciences, although revenues were flat organically, the company reported strong service revenue growth.
Progress in Healthcare and Pharmaceutical Industries: STERIS derives a bulk of its revenues from the healthcare and pharmaceutical industries. In June 2021, STERIS acquired Cantel Medical, a global provider of infection prevention products and services, primarily catering 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 and additional single-use accessories. Following the acquisition, STERIS has undertaken a number of decisions to impact how it approaches the market with its customer-first mentality.
Downsides
Tough Competition: STERIS competes for pharmaceutical, research and industrial customers against several large and small companies. 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.
Image Source: Zacks Investment Research
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 90 days, the Zacks Consensus Estimate for STERIS’ earnings has moved 0.8% down to $8.44.
The Zacks Consensus Estimate for fiscal 2023 revenues is pegged at $4.94 billion, suggesting a 7.7% growth from fiscal 2022 reported number.
Key Picks
A few other better-ranked stocks in the broader medical space that investors can consider are ShockWave Medical, Inc. (SWAV - Free Report) , Orthofix Medical Inc. (OFIX - Free Report) and Merit Medical System (MMSI - Free Report) .
ShockWave Medical, sporting a Zacks Rank #2 (Buy) at present, has an estimated growth rate of 33.1% for 2023. The company’s earnings surpassed estimates in all the trailing four quarters, the average beat being 180.1%.
ShockWave Medical has outperformed its industry in the past year. SWAV has gained 35% against the industry’s 32.6% fall in the past year.
Orthofix Medical, currently carrying a Zacks Rank #1 (Strong Buy), reported third-quarter 2022 adjusted EPS of 13 cents, which beat the Zacks Consensus Estimate by a stupendous 550%. Revenues of $114 million outpaced the consensus mark by 2.7%.
Orthofix Medical has an estimated next-year growth rate of 58.97%. MMSI’s earnings surpassed estimates in the trailing three quarters and missed in one, the average being 129.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Merit Medical, currently carrying a Zacks Rank of 2, reported third-quarter 2022 adjusted EPS of 64 cents, which beat the Zacks Consensus Estimate by 20.8%. Revenues of $287.2 million outpaced the consensus mark by 5.2%.
Merit Medical has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average being 25.4%.
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Here's Why Investors Should Retain STERIS (STE) Stock for Now
STERIS plc (STE - Free Report) has been gaining from strong segmental growth. The integration of Cantel Medical continued successfully, strengthening 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 19.3% compared with the industry’s 26.2% decline and the S&P 500’s 17.3% fall.
The renowned provider of infection prevention, other procedural products and services has a market capitalization of $18.27 billion. Its earnings surpassed estimates in the trailing three quarters and met in one, the average surprise being 2.6%.
The company’s projected earnings growth rate of 11% for the next year compares with the industry’s growth projection of 16.6%.
Let’s delve deeper.
Factors at Play
Q2 Upsides: STERIS’ second-quarter fiscal 2023 constant currency organic revenue increased 7% year over year, driven by volume and 290 basis points favorable impact of price. The integration of Cantel Medical continued successfully. STERIS achieved approximately $15 million of cost synergies in the fiscal second quarter, bringing the first-half total to about $35 million. STERIS is on track to achieve its stated goal of approximately $50 million of cost synergies in fiscal 2023.
Strong Segmental Performance: In the second quarter of fiscal 2023, organic revenues increased 7% year over year, led by robust sales across the company’s Healthcare and AST segments. Organic revenues at Healthcare rose 7%, suggesting a 5% improvement in capital equipment revenues and a 1% increase in service revenues. Revenues at AST rose 19% organically, driven by increased demand from medical device and biopharma customers. Within Life Sciences, although revenues were flat organically, the company reported strong service revenue growth.
Progress in Healthcare and Pharmaceutical Industries: STERIS derives a bulk of its revenues from the healthcare and pharmaceutical industries. In June 2021, STERIS acquired Cantel Medical, a global provider of infection prevention products and services, primarily catering 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 and additional single-use accessories. Following the acquisition, STERIS has undertaken a number of decisions to impact how it approaches the market with its customer-first mentality.
Downsides
Tough Competition: STERIS competes for pharmaceutical, research and industrial customers against several large and small companies. 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.
Image Source: Zacks Investment Research
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 90 days, the Zacks Consensus Estimate for STERIS’ earnings has moved 0.8% down to $8.44.
The Zacks Consensus Estimate for fiscal 2023 revenues is pegged at $4.94 billion, suggesting a 7.7% growth from fiscal 2022 reported number.
Key Picks
A few other better-ranked stocks in the broader medical space that investors can consider are ShockWave Medical, Inc. (SWAV - Free Report) , Orthofix Medical Inc. (OFIX - Free Report) and Merit Medical System (MMSI - Free Report) .
ShockWave Medical, sporting a Zacks Rank #2 (Buy) at present, has an estimated growth rate of 33.1% for 2023. The company’s earnings surpassed estimates in all the trailing four quarters, the average beat being 180.1%.
ShockWave Medical has outperformed its industry in the past year. SWAV has gained 35% against the industry’s 32.6% fall in the past year.
Orthofix Medical, currently carrying a Zacks Rank #1 (Strong Buy), reported third-quarter 2022 adjusted EPS of 13 cents, which beat the Zacks Consensus Estimate by a stupendous 550%. Revenues of $114 million outpaced the consensus mark by 2.7%.
Orthofix Medical has an estimated next-year growth rate of 58.97%. MMSI’s earnings surpassed estimates in the trailing three quarters and missed in one, the average being 129.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Merit Medical, currently carrying a Zacks Rank of 2, reported third-quarter 2022 adjusted EPS of 64 cents, which beat the Zacks Consensus Estimate by 20.8%. Revenues of $287.2 million outpaced the consensus mark by 5.2%.
Merit Medical has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average being 25.4%.