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Steris (STE) Up 7.5% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Steris (STE - Free Report) . Shares have added about 7.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Steris due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

STERIS Posts Strong Q4 on Balanced Segmental Growth

STERIS reported fourth-quarter fiscal 2019 adjusted earnings per share (EPS) of $1.53, up 23.4% year over year. The metric surpassed the Zacks Consensus Estimate by 6.3%. Reported EPS came in at $1.27 cents, up from the year-ago 86 cents.

For fiscal 2019, adjusted EPS came in at $4.89, up 17.8% from the year-ago period. The figure has surpassed the Zacks Consensus Estimate by 2.1%.

Revenues of $768.2 million in the quarter rose 7.3% year over year and topped the Zacks Consensus Estimate by 4.6%.
For the full year, revenues came in at $2.78 billion, up 6.5% from a year ago. The figure has surpassed the Zacks Consensus Estimate by 1.1%.

Quarter in Detail

Organic revenue growth at constant currency was 9% year over year in the fiscal fourth quarter, mainly driven by growth across all segments.

The company operates through four segments: Healthcare Products, Healthcare Specialty Services, Applied Sterilization Technologies and Life Sciences.

Revenues at Healthcare Products increased 7.4% year over year to $386.6 million (up 8.5% on a constant currency organic basis). In the quarter under review, service revenues grew 7% and capital equipment revenues rose 10%. Meanwhile, consumable revenues grew 4% on divestitures limiting growth.

Revenues at the Healthcare Specialty Services segment were up 10.9% to $135.5 million (up 12.7% on a constant currency organic basis).

Revenues at Applied Sterilization Technologies rose 7.1% to $143.1 million (up 10.4% at CER organic basis) backed by increased demand from core medical device customers.

Revenues at Life Sciences segment rose 2.7% to $103 million (up 4.4% at CER organic basis) on 14% growth in consumable revenues along with a 2% rise in service revenues. However, capital equipment revenues declined 9% year over year.

Margins

Adjusted gross margin (after excluding cost of revenues for restructuring) expanded 274 basis points (bps) year over year to 43.6% in the reported quarter.

STERIS witnessed a 6.8% year-over-year rise in selling, general and administrative expenses to $173.1 million. Research and development expenses declined 9.8% to $15.9 million. Overall, adjusted operating margin expanded 323 bps on a year-over-year basis to 18.9% in the reported quarter.

Financial Details

STERIS exited fiscal 2019 with cash and cash equivalents of $220.6 million compared with $224.9 million at the end of third-quarter fiscal 2019. The company had long-term debt of $1.18 billion at the end of fiscal 2019 compared with $1.25 billion at the end of third-quarter fiscal 2019.

2020 Guidance Issued

STERIS has issued its projections for fiscal 2020 constant currency organic revenue growth at around 5-6 %. The Zacks Consensus Estimate for fiscal 2020 revenues, is pegged at $2.90 billion.

The company expects adjusted EPS for fiscal 2020 in the range of $5.28-5.43. The Zacks Consensus Estimate for fiscal 2020 adjusted EPS lies at $5.31, within the guided range.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Steris has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Steris has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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