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STERIS' (STE) Growth Picture Impressive Amid Rising Costs

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On Feb 25, we issued an updated research report on STERIS plc (STE - Free Report) . The company has been actively trying to expand into the adjacent markets, and strengthen its core business through acquisitions and divestments. However, a tough competitive landscape and currency headwinds persistently pose threats to STERIS. The stock currently carries a Zacks Rank #2 (Buy).

Over the past three months, shares of STERIS have outperformed its industry. The stock has rallied 10.8% compared with 5% rise of the industry.

STERIS exited third-quarter fiscal 2020 with better-than-expected results. The company witnessed solid revenue growth across each of its operating segments, which is encouraging.

 

We are impressed with the company’s consistently strong organic growth performance across its operating segments. Healthcare Products, Healthcare Specialty Services, Applied Sterilization Technologies and Life Sciences segments registered growth of 8%, 12.6%, 14.3% and 16.4%, respectively.

The company is currently displaying stellar top-line performance on favorable underlying market trends, along with new product and service offerings. The company’s service maintenance revenues recorded growth, primarily driven by installation revenues owing to solid capital shipments, in the first half of the year.

STERIS has also made certain acquisitions and organizational changes, which are anticipated to better align with its operations. With the acquisition of the U.K.-based outsourced sterilization services provider — Synergy Health — STERIS has become the latest global leader in infection prevention and sterilization.

Nonetheless, escalating operating expenses are straining the bottom line. Moreover, customer consolidation is another concern for the company. Meanwhile, STERIS competes for pharmaceutical, research and industrial customers with several bigwigs boasting extensive product portfolios and a global reach.

In addition, multiple STERIS' clients are undergoing consolidation, partly due to healthcare cost-reduction measures, initiated by competitive pressures and legislators, regulators plus third-party payors. We believe if the company fails to check its customer consolidation rate now, it will adversely impact STERIS’ business as well as finances.

Key Picks

Some better-ranked stocks from the broader medical space include Patterson Companies, Inc. (PDCO - Free Report) , West Pharmaceutical Services, Inc. (WST - Free Report) and DENTSPLY SIRONA, Inc. (XRAY - Free Report) , each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Patterson Companies has an expected long-term earnings growth rate of 6.4%.

West Pharmaceutical has an estimated long-term earnings growth rate of 14%.

DENTSPLY SIRONA has a projected long-term earnings growth rate of 11.6%.

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