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Steris (STE) Down 6.9% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Steris (STE - Free Report) . Shares have lost about 6.9% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Steris due for a breakout? 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 Surpasses Q3 Earnings Estimates, Ups FY20 View

STERIS reported third-quarter fiscal 2020 adjusted earnings per share of $1.45, up 15.1% year over year. The metric beat the Zacks Consensus Estimate by 1.4%.

The company’s GAAP (reported) earnings per share were $1.23, up by a huge margin of 119.6% year over year.

Revenues of $774.3 million increased 11.2% year over year in the quarter, beating the Zacks Consensus Estimate by 3.3%.

Quarter in Detail

Organic revenue growth at constant currency or CER was 12% year over year in the fiscal third quarter, mainly driven by growth across all segments, backed by strong underlying customer demand.

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

Revenues at Healthcare Products increased 8% year over year to $365.4 million (up 8.1% on a CER organic basis). In the quarter under review, service revenues grew 9% and capital equipment revenues rose 3%. Meanwhile, consumable revenues grew 13%.

Revenues at the Healthcare Specialty Services segment were up 12.6% to $143.9 million (up 13.9% on a CER organic basis).

Revenues at Applied Sterilization Technologies climbed 14.3% to $156.3 million (up 15.1% at CER organic basis), backed by increased demand from core medical device customers.

Revenues at the Life Sciences segment increased 16.4% to $108.8 million (up 17% at CER organic basis) on 13% growth in consumable revenues along with a 6% rise in service revenues and 36% growth in capital equipment revenues.

The company approved a quarterly interim dividend of 37 cents per share to shareholders.

Margins

Adjusted gross margin (after excluding cost of revenues for restructuring) expanded 38 basis points (bps) year over year to 42.9% in the reported quarter.

STERIS witnessed an 8.4% year-over-year decline in selling, general and administrative expenses to $172.9 million. Research and development expenses flared up 8.7% to $16.5 million. Overall, adjusted operating margin expanded 338 bps year over year to 18.4% in the quarter.

Financial Details

STERIS exited the fiscal third quarter with cash and cash equivalents of $199.2 million compared with $225.5 million witnessed at the end of second-quarter fiscal 2020.

Cumulative cash flow from operating activities was $391.3 million at the end of the fiscal third quarter compared with $360.6 million in the year-ago period.

Guidance

The company raised the projection for fiscal 2020 adjusted earnings per share, which is now at the high-end of the previously mentioned $5.50-5.65. The Zacks Consensus Estimate for fiscal 2020 adjusted earnings per share is pegged at $5.58.

Organic revenue growth at CER is now expected to be 9%, marking a rise from 7.5-8.5% stated earlier. The Zacks Consensus Estimate for fiscal 2020 revenues is pegged at $2.99 billion.

The company also anticipates a negative impact of $20 million on reported revenues in fiscal 2020, resulting from currency fluctuations. Earlier, it predicted an impact of $25 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

At this time, Steris has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Steris has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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