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

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STERIS plc STE has been gaining from robust segmental growth. Expansions in both margins as well as the product and service portfolio along with increased fiscal 2020 guidance buoy optimism.

Over the past year, shares of the Zacks Rank #2 (Buy) company have outperformed its industry. The company has gained 31.2% against a 3.3% fall of its industry. Also, it has outperformed the S&P 500’s 7.1% rally during the same period.

The renowned provider of infection prevention and other procedural products and services has a market capitalization of $13.45 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.

Impressive Q3 Results: STERIS exited third-quarter fiscal 2020 with better-than-expected results. We are upbeat about the company’s solid revenue growth across each of its operating segments. Its year-over-year organic revenue growth at constant currency or CER in the fiscal third quarter was also 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.

Potential of Infection Prevention and Sterilization Wing: We are upbeat about STERIS’ continued benefits from the acquisition 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 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: We are optimistic about the company’s 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 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 biggies 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.

Estimate Trend

STERIS is witnessing a positive estimate revision trend for 2020. Over the past 30 days, the Zacks Consensus Estimate for its earnings has moved 0.6% north to $1.63.

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, Medtronic plc MDT and Hill-Rom Holdings, Inc. HRC.

ResMed has a projected long-term earnings growth rate of 14.5%. It currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Medtronic’s long-term earnings growth rate is estimated at 7.4%. The company presently carries a Zacks Rank #2.

Hill-Rom’s long-term earnings growth rate is estimated at 11.1%. It currently carries a Zacks Rank #2.

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