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Here's Why You Should Hold on to STERIS (STE) Stock Now

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Zacks Equity Research
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STERIS plc STE is well-poised for growth in the coming quarters backed by its strong segmental performance despite pandemic-led mayhem. Healthcare and Pharmaceuticals industries hold strong growth potential, which buoys optimism in the stock. However, pricing pressure and stiff competition remain concerns.

Over the past six months, shares of this Zacks Rank #3 (Hold) company have gained 7.6% against the industry’s 1% fall. The S&P 500 rose 19.6% during the same period.

The renowned provider of infection prevention, and other procedural products and services has a market capitalization of $17.12 billion. The company projects 10.5% growth for the next year and expects to maintain strong segmental performance. Further, it surpassed estimates in the trailing four quarters, delivering a surprise of 17.44%, on average.

Riding on the company’s current business growth and bullish near-term prospects, this stock is worth holding on to, for now.

Key Growth Drivers

Strong Segmental Business Amid Pandemic: We are optimistic about STERIS’ better-than-expected results for third-quarter fiscal 2021. The company witnessed solid revenue growth across three of its reporting segments despite the pandemic. STERIS saw 7% growth in consumable revenues and 5% rise in service revenues in third-quarter fiscal 2021. Revenues at AST improved 10.2% at CER organic basis. CER organic revenues reflected increased demand from medical device customers on a rebound in procedure volumes during the quarter. 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.

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 the 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.

Downsides

On the flip side, there are some factors that have been deterring the stock’s rally of late.

Pricing Pressure: 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. These are influenced by worldwide economic conditions, speculative action, world supply and demand balances, inventory levels, availability of substitute materials, currency exchange rates, anticipated or perceived shortages and various other factors.

Competitive Landscape: 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. In the Healthcare segment, STERIS’ notable competitors include 3M, Belimed, Cantel Medical, Ecolab, Getinge, Go Jo, Johnson & Johnson, Kimberly-Clark, Skytron and Stryker.

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 4.64% north to $6.31.

The Zacks Consensus Estimate for its first-quarter 2021 revenues is pegged at $879.9 million, suggesting 6.91% growth from the year-ago reported number.

Zacks Rank and Key Picks

A few better-ranked stocks from the broader medical space include Asensus Surgical, Inc. ASXC, Cantel Medical Corp. CMD and ConforMIS, Inc. CFMS, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

Cantel Medical has an estimated long-term earnings growth rate of 19%.

ConforMIS has a projected long-term earnings growth rate of 42%.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>


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STERIS plc (STE) : Free Stock Analysis Report

ConforMIS, Inc. (CFMS) : Free Stock Analysis Report

Cantel Medical Corp. (CMD) : Free Stock Analysis Report

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

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