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

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STERIS plc STE is gaining from elevated consumer demand and rebound in procedure volumes along with strength in segments catering to COVID-related products and services. The company’s infection prevention and sterilization wing is growing. Further, the bullish fiscal 2022 outlook is encouraging. However, pricing pressure and macroeconomic problems are a concern.

In the past year, shares of this Zacks Rank #2 (Buy) company have gained 38.8% compared with the industry’s 21.2% rise. The S&P 500 rose 40% during the same period.

The renowned provider of infection prevention as well as other procedural products and services has a market capitalization of $21.00 billion. The company projects 12.4% 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

Strong Segmental Performance: STERIS’ solid fourth-quarter performance due to elevated consumer demand and rebound in procedure volumes buoys optimism. In fourth-quarter fiscal 2021, revenues of STERIS Healthcare rose 2.8% year over year. Revenues at AST increased 10.1% at CER organic basis. CER organic revenues reflected higher demand from medical device customers during the quarter. Revenues in 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

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STERIS' Infection Prevention and Sterilization Wing Grows Well Globally: With the acquisition of U.K.-based outsourced sterilization services provider Synergy Health, STERIS became the new global leader in infection prevention and sterilization. The company continues to benefit from the acquisition of Synergy Health. The consolidation, since its inception, has boosted STERIS' presence in the international markets as it combines its strong presence in North America with Synergy's solid footprint across Europe.

Upbeat Guidance: We are upbeat about the company’s bullish fiscal 2022 outlook. The guidance includes business integration of the ongoing Cantel Medical buyout. The acquisition is expected to be completed on Jun 2.

The company expects reported revenues to be nearly $4.5 billion, while constant-currency organic revenue growth is projected in the range of 8-9% for fiscal 2022. Adjusted earnings per diluted share are anticipated in the band of $7.40-$7.65.

Downsides

Competitive Landscape: The company expects to face continued competition in the future as new infection prevention, sterile processing, contamination control, gastrointestinal and surgical support products and services enter the market. Moreover, management believes STERIS’ existing or potential competitors might have greater resources than it, which might enable them to develop and commercialize products at a faster pace than STERIS. This might hamper STERIS’ growth.

Macroeconomic Problems: The current macroeconomic environment across the globe has adversely affected STERIS’ financial operations. Governments and insurance companies continue to look for ways to contain the rising cost of healthcare. This might put pressure on players in the healthcare industry with STERIS being no exception.

Estimate Trends

STERIS is witnessing a positive estimate revision trend for the current year. In the past 90 days, the Zacks Consensus Estimate for earnings has moved 7.60% north to $7.50.

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

Other Key Picks

Some other top-ranked stocks from the broader medical space are Envista Holdings Corporation NVST, BellRing Brands, Inc. BRBR and Baxter International Inc. BAX, each carrying a Zacks Rank #2. You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.

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

BellRing Brands has an estimated long-term earnings growth rate of 22%.

Baxter International has a projected long-term earnings growth rate of 9%.

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