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

Zacks Equity Research

STERIS plc STE has been gaining from robust segmental growth. Expansions in both margins, and the product and service portfolio along with increased fiscal 2020 guidance buoy optimism. However, downsides might result from customer consolidation. Also, the coronavirus pandemic is adversely impacting the stock price.

Over the past year, shares of the Zacks Rank #1 (Strong Buy) company have outperformed its industry. The company has gained 10.5% against a 15.9% decline of its industry. Also, it has outperformed the S&P 500’s 14.2% fall during the same period.

The renowned provider of infection prevention, and other procedural products and services has a market capitalization of $11.77 billion. The company projects 6.5% growth for the fourth quarter of fiscal 2020 and expects to maintain its strong segmental performance. Further, it delivered a positive earnings surprise of 5.8%, on average, in the trailing four quarters.

 


 

Let’s delve deeper.

Infection Prevention and Sterilization Wing Holds Potential: STERIS continues to benefit from the integration of the U.K.-based outsourced sterilization services provider, Synergy Health, as it paves the way for STERIS’ global leadership in infection prevention and sterilization. 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, the Asia Pacific and Latin America.

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

Q3 Results Impressive: STERIS’ year-over-year organic revenue growth at constant currency in the fiscal third quarter was impressive. Contributions from elevated consumer demand and a broader portfolio of products and services bode well for the company. Expansion of both margins during the quarter is also encouraging. In addition, increased fiscal 2020 guidance instills investors’ confidence in the stock.

However, despite the upsides, the company’s stock price may witness a downturn due to several customers’ consolidations, which resulted partly from healthcare cost-reduction measures. Further, the ongoing coronavirus pandemic is pulling down share prices as a whole and leading to an economic crisis.

Estimate Trend

STERIS is witnessing a positive estimate revision trend for 2020. Over the past 60 days, the Zacks Consensus Estimate for its earnings has moved 0.7% north to $5.62.

The Zacks Consensus Estimate for the company’s fourth-quarter 2020 revenues is pegged at $807.5 million, suggesting a 5.1% rise from the year-ago reported number.

Other Key Picks

Some other top-ranked stocks from the broader medical space are ResMed Inc. RMD, National Vision Holdings, Inc. EYE and Phibro Animal Health Corporation PAHC.

ResMed has a projected long-term earnings growth rate of 14.4%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

National Vision’s long-term earnings growth rate is estimated at 10.7%. The company presently has a Zacks Rank #2.

Phibro’s long-term earnings growth rate is estimated at 2.1%. It currently carries a Zacks Rank #2.

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