Here's Why Investors Should Retain STERIS (STE) Stock for Now
STERIS plc STE has been gaining from strong segmental growth. The successful integration of the recently-acquired business will strengthen, complement and expand STERIS’s product offerings within the Healthcare segment. However, a challenging macroeconomic environment and stiff competition raise apprehension.
In the past year, shares of this Zacks Rank #3 (Hold) company have gained 9.5% compared with the industry’s 2.3% plunge and the S&P 500’s 7% rise.
The renowned provider of infection prevention and other procedural products and services has a market capitalization of $22.01 billion. The company’s projected earnings growth rate of 11% for the next year compares with the industry’s growth projection of 13.8%.
Let’s delve deeper.
Factors at Play
Q1 Upsides: STERIS exited first-quarter fiscal 2024 with earnings and revenue beat. Barring Life Sciences and Dental, each of STERIS’s operating segments reported organic revenue growth, which is encouraging. Yet, escalating costs are exerting pressure on gross profit.
In fiscal 2024, the company is optimistic about many of the challenges of fiscal 2023 abating, including procedure volumes and supply chain constraints. The company is also optimistic about the recently completed acquisition of BD’s surgical instrumentation, laparoscopic instrumentation and sterilization container assets. According to STE, the successful integration of the acquired business will strengthen, complement and expand STERIS’s product offerings within the Healthcare segment.
Acquisition to Drive Growth: STERIS acquired surgical instrumentation assets from Becton, Dickinson and Company (BDX). The transaction includes V. Mueller, Snowden-Pencer and Genesis branded products, which are the well-known providers of surgical instruments and sterilization containers to healthcare customers.
The acquisition is a natural extension for STERIS in the operating room and sterile processing department. The addition of the brands is expected to strengthen, complement and expand STERIS’ product offerings within the Healthcare segment.
Raised Guidance: Considering the just-completed acquisition of the surgical instrumentation, laparoscopic instrumentation and sterilization container assets from Becton, Dickinson and Company or BD (BDX), STERIS updated its fiscal 2024 guidance.
Image Source: Zacks Investment Research
STERIS now expects fiscal 2024 revenues to increase 9-10% from fiscal 2023 (earlier expectation was in the range of 7-8% growth). Organic revenue expectation at CER remains unchanged at 6-7%. The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $5.33 billion, implying 7.5% growth from fiscal 2023.
Adjusted earnings per share for fiscal 2024 are now expected to be in the range of $8.60 to $8.80 (the earlier range was $8.55 to $8.75). The Zacks Consensus Estimate for the metric is pegged at $8.79.
Downsides
Tough Competition: STERIS competes for pharmaceutical, research and industrial customers against several large and small companies. The company expects to face continued competition as new infection prevention, sterile processing, contamination control and gastrointestinal and surgical support products and services enter the market.
Pricing Pressure: STERIS purchases raw materials and energy supplies from various suppliers, the availability and price of which are subject to volatility. Changes in regulatory requirements, unavailability or short supply of these products might disrupt STERIS’ AST operations, in addition to other consequences.
Estimate Trends
In the past 90 days, the Zacks Consensus Estimate for STERIS’ fiscal 2024 earnings has moved 3.4% north to $8.72
The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $5.43 billion, suggesting a 9.6% growth from the fiscal 2023 reported number.
Key Picks
Some better-ranked stocks in the broader medical space are Elevance Health, Inc. ELV, Integer Holdings Corporation ITGR and Patterson Companies, Inc. PDCO.
Elevance Health reported second-quarter 2023 adjusted earnings per share (EPS) of $9.04, beating the Zacks Consensus Estimate by 2.5%. Revenues of $43.38 billion surpassed the Zacks Consensus Estimate by 4.5%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Elevance Health has a long-term estimated growth rate of 12.1%. ELV’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 2.8%.
Integer Holdings reported second-quarter 2023 adjusted EPS of $1.14, beating the Zacks Consensus Estimate by 15.2%. Revenues of $400 million surpassed the Zacks Consensus Estimate by 8.9%. It currently carries a Zacks Rank #2.
Integer Holdings has a long-term estimated growth rate of 12.1%. ITGR’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 8.4%.
Patterson Companies has an Earnings ESP of +5.66% and a Zacks Rank of 1. PDCO has an estimated long-term growth rate of 9.2%.
Patterson Companies’ earnings surpassed estimates in three of the trailing four quarters and missed once, with the average surprise being 4.5%.
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Patterson Companies, Inc. (PDCO) : Free Stock Analysis Report
STERIS plc (STE) : Free Stock Analysis Report
Integer Holdings Corporation (ITGR) : Free Stock Analysis Report
Elevance Health, Inc. (ELV) : Free Stock Analysis Report
