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Here's Why You Should Add STERIS (STE) to Your Portfolio

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·4 min read
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STERIS plc STE is gaining from its strong segmental performance amid post-pandemic recovery. Healthcare and Pharmaceuticals industries hold strong growth potential, which buoys optimism in the stock. The bullish fiscal 2022 outlook is encouraging as well. However, pricing pressure and stiff competition remain concerns.

Over the past year, shares of this Zacks Rank #2 (Buy) company have gained 15.2% compared with the industry’s 14.1% rise. The S&P 500 rose 39.5% during the same period.

The renowned provider of infection prevention, and other procedural products and services has a market capitalization of $16.29 billion. The company projects 16.9% growth for the next year and expects to maintain strong segmental performance. Further, it surpassed estimates in three of the trailing four quarters and missed in one, delivering a surprise of 13.97%, on average.

Factors at Play

Solid Q4 Results: STERIS exited fourth-quarter fiscal 2021 with a revenue beat. The company witnessed solid revenue growth across three of its reporting segments amid the post-pandemic recovery. Contributions from the Key Surgical buyout, elevated consumer demand and rebound in procedure volumes along with strength in segments catering to COVID-related products and services are encouraging. An increase in free cash flow despite increased capital spending instills optimism. Further, the company has issued its fiscal 2022 guidance, which is indicative of this bullish trend.

Strong Segmental Performance: In the fourth quarter of fiscal 2021, revenues of STERIS Healthcare rose 2.8% year over year. Revenues at AST improved 10.1% at CER organic basis. CER organic revenues reflected increased demand from medical device customers during the quarter. Revenues at the Life Sciences segment rose 7.5% at CER organic basis led by 43% growth in capital equipment revenues and 5% rise in service revenues.

Zacks Investment Research
Zacks Investment Research

High Potential in Healthcare and Pharmaceutical Industries: We are upbeat about strong growth potential in healthcare and pharmaceuticals industries. The bulk of STERIS’ revenues are obtained from healthcare and pharmaceutical industries. Growth in these industries is primarily driven by aging of the global population as an increasing number of individuals are entering their prime healthcare consumption years. With life expectancy on the rise globally, a larger aging population drives demand for medical procedures. This, in turn, translates into higher consumption of single-use medical devices and surgical kits processed by STERIS.

However, STERIS purchases raw materials, fabricated and other components, and energy supplies from various suppliers. Availability and price of raw materials and energy supplies are subject to volatility.

Moreover, STERIS competes for pharmaceutical, research and industrial customers against several large companies as well as a number of small companies with limited product offerings and operations in one or a few countries.

Estimate Trends

STERIS is witnessing a positive estimate revision trend for the current year. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved 4.66% north to $7.18.

The Zacks Consensus Estimate for its first-quarter fiscal 2022 revenues is pegged at $857.8 million, suggesting 28.2% growth from the year-ago reported number.

Others Key Picks

A few similar-ranked stocks from the broader medical space are include Asensus Surgical, Inc. ASXC, The Cooper Companies, Inc. COO and Envista Holdings Corporation NVST, each carrying a Zacks Rank #2. You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.

Asensus Surgical has a projected long-term earnings growth rate of 71%.

The Cooper Companies has a projected long-term earnings growth rate of 11%.

Envista Holdings has an estimated long-term earnings growth rate of 26%.

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The Cooper Companies, Inc. (COO) : Free Stock Analysis Report

STERIS plc (STE) : Free Stock Analysis Report

Envista Holdings Corporation (NVST) : Free Stock Analysis Report

Asensus Surgical, Inc. (ASXC) : Free Stock Analysis Report

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