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STERIS (STE) Stock Hits New 52-Week High: What's Driving it?

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Shares of STERIS plc STE reached a new 52-week high of $168.98 on Feb 25, before closing the session marginally lower at $164.87. The stock has rallied 7.4% since its fiscal 2020 third-quarter earnings announcement on Feb 10.

The company is witnessing an upward trend in its stock price, prompted by contributions from elevated consumer demand. A broader portfolio of products and services along with several tuck-in acquisitions bodes well. Further, solid performance by each of its key operating businesses in the third quarter of fiscal 2020 boosted the market sentiment. A raised company guidance instills investors’ optimism.

Let's delve deeper.


Q3 Performance

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. Contributions from elevated consumer demand, and a broader portfolio of products and services bode well. Expansion of both margins during the quarter is also encouraging. Additionally, increased fiscal 2020 guidance instills investors’ confidence in the stock.

Other Growth Drivers

Potential of Infection Prevention and Sterilization Wing: Investors are upbeat about STERIS’ continued benefits from the acquisition of Synergy Health — the U.K.-based outsourced sterilization services provider — as it paves the way for STERIS’ global leadership in infection prevention and sterilization. The sector recorded solid revenue growth from strong adoptions by the company’s global core medical device customer base.

The consolidation boosted STERIS' presence in the international markets as it combines the company’s strong presence in North America with Synergy's solid footprint across Europe. It also provided STERIS with an opportunity to better serve the emerging markets of the Asia Pacific and Latin America.

Healthcare and Pharmaceutical Industries Hold Potential: Investors are optimistic about the growth potential of the company in the healthcare and pharmaceutical industries. With life expectancy is on the rise globally, a larger aging population increases the demand for medical procedures. This, in turn, translates into higher consumption of single-use medical devices and surgical kits processed by STERIS.

However, despite the upsides, the company’s stock price may witness a downturn due to several customers undergoing consolidation. This partly resulted from healthcare cost-reduction measures initiated by competitive pressures as well as legislators, regulators and third-party payors. The company also faces tough competition from big-shots like Johnson & Johnson as well as small companies. The continued efforts of the government and insurance companies to contain the rising cost of healthcare are also putting pressure on STERIS’ financial operations.

Zacks Rank & Other Key Picks

Currently, the company carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks from the broader medical space are Phibro Animal Health Corp. PAHC, Hill-Rom Holdings, Inc. HRC and ResMed Inc. RMD.

Phibro currently sports a Zacks Rank #1 (Strong Buy) and has a projected long-term earnings growth rate of 2.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hill-Rom’s long-term earnings growth rate is estimated to be 11.1%. The company presently carries a Zacks Rank of 2.

ResMed’s long-term earnings growth rate is expected to be 12%. It currently carries a Zacks Rank #2.

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