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Here's Why You Should Hold on to STERIS (STE) Stock Now

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STERIS plc (STE - Free Report) is well poised for growth on the back of solid fundamentals across the company’s segments. Post the integration of Synergy Health, the company is gradually gaining market share overseas.  

In the past year, the Zacks Rank #3 (Hold) stock has rallied 35.7% compared with the industry's 10.2% rally. Also, the current level compares favorably with the S&P 500 index’s 6.5% rise.

Why You Should Retain STERIS?

Growth in segmental performance

Revenues in each of the company’s key operating segments — Healthcare Products, Healthcare Specialty Services, Applied Sterilization Technologies and Life Sciences — registered solid growth in the last reported quarter. The company is upbeat about its growth trajectory on the back of organic expansions.

Targeted Restructuring plan

The company has also made certain divestments and organizational changes, which are likely to fuel growth in the future. Recently, the company announced a restructuring plan that includes the closure of two manufacturing facilities —  one in Brazil and another in England. These initiatives are expected to better align with its operations.

Expansion of global markets

With the acquisition of U.K.-based outsourced sterilization services provider — Synergy Health — three years ago, STERIS has become the new global leader in infection prevention and sterilization. Currently, the company is providing improved healthcare services to medical device and pharma companies, hospitals as well as other healthcare facilities across the globe. Also, it has provided STERIS an opportunity to better serve the emerging markets of Asia-Pacific and Latin America.

High Potential in Healthcare & Pharmaceutical Industries

The bulk of STERIS’s revenues are obtained from the healthcare and pharmaceutical industries. These industries are dependent on advancement in healthcare delivery, acceptance of new technologies, government policies and general economic conditions. Moreover, rising global life expectancy is boosting the demand for medical procedures. This translates into higher consumption of single use medical devices and surgical kits processed by STERIS. Considering the continued success in offering varied medical equipment to customers, we believe that STERIS holds potential to strengthen foothold in these industries.

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Based on the results for the first nine months of fiscal 2019, STERIS updated full-year projections for constant-currency organic revenue growth to around 6% from 5-6%. The Zacks Consensus Estimate for fiscal 2019 revenues is pegged at $2.75 billion.

The company continues to expect the adjusted earnings per share (EPS) guidance for fiscal 2019 in the range of $4.74-$4.84. The Zacks Consensus Estimate for adjusted EPS is pegged at $4.78.

Which Way Are Estimates Treading?

STERIS reported third-quarter fiscal 2019 adjusted EPS of $1.26, up 12.5% year over year. The metric is in line with the Zacks Consensus Estimate.

Revenues of $696.2 million in the fiscal third quarter rose 5.2% year over year. Also, the figure topped the Zacks Consensus Estimate by 1.2%.

Downsides

In its healthcare and pharmaceutical segment, STERIS faces cutthroat competition from market rivals — 3M, Belimed, Cantel Medical, Ecolab, Fedegari, Getinge and MECO. Current customer consolidation scenario, weak cost-reduction initiatives and stringent macroeconomic climate continue to be headwinds for the company. Also, valuation looks stretched at this moment.

Zacks Rank and Key Picks

Currently, STERIS carries a Zacks rank of #3 (Hold).

Some better-ranked stocks in the broader medical space are Stryker Corporation (SYK - Free Report) , Penumbra, Inc (PEN - Free Report) and Varian Medical Systems, Inc (VAR - Free Report) . Notably, each of these stocks currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stryker’s long-term earnings growth rate is projected to be 10%

Penumbra’s long-term earnings growth rate is projected to be 20.9%.

Varian’s long-term earnings growth rate is projected to be 8%.

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