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STERIS Continues to Trade Below Industry on Dull Outlook

Zacks Equity Research

On Mar 16, we issued an updated research report on Ohio-based STERIS plc STE- a manufacturer and marketer of infection prevention, decontamination, microbial reduction, along with surgical, and gastrointestinal support products and services. The company currently carries a Zacks Rank #4 (Sell).

Since STERIS released its dismal third-quarter fiscal 2017 results last month, the company’s share price has consistently remained below the Zacks Categorized Medical-Instruments Industry. The company’s lowered revenue and earnings guidance for fiscal 2017 hints a gloomy operating scenario in the days ahead. Over the last three months, the stock has gained 0.7% which is much below the 7.29% gain of the broader industry.

We note that the government’s and insurance companies’ consistent efforts to curb the rising healthcare costs have been putting pressure on the stock for quite some time. We are also concerned about the current customer consolidation scenario which will continue to adversely impact the company, unless checked immediately. The competitive landscape and weak cost reduction initiatives also remain an overhang.

On a positive note, organic growth performance was strong across most of the segments. Further, growth in free cash flow reserve is indicative of the strong cash balance reserve the company currently holds.

We note that Synergy Health—the company STERIS acquired last year—was one of the primary contributors to the strong double-digit revenue growth observed by the combined company. Management expects Synergy to contribute between $640–$650 million or a low-single-digit growth in fiscal 2017.

Key Picks

Better-ranked stocks in the medical product sector are Inogen, Inc. INGN, Bovie Medical Corporation BVX and Cardiovascular Systems, Inc. CSII. Inogen sports a Zacks Rank #1 (Strong Buy) while the other two companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Inogen gained 77.3% in the last one year in comparison to the S&P 500’s gain of 16.7%. The company has a stellar four-quarter average earnings surprise of over 49.08%.

Bovie Medical surged 49.4% in the last one year in comparison to the S&P 500. It has a four-quarter average earnings surprise of 28.7%.

Cardiovascular Systems gained over 100% in the past one year, better than the S&P 500 mark. The stock has an impressive long-term earnings growth rate of 16.7% for the next five years, compared to the industry average of 15.2%.

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Inogen, Inc (INGN): Free Stock Analysis Report
Cardiovascular Systems, Inc. (CSII): Free Stock Analysis Report
STERIS PLC (STE): Free Stock Analysis Report
Bovie Medical Corporation (BVX): Free Stock Analysis Report
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