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Steris Poor Q2 Disappoints, Synergy Health Raises Hope

Zacks Equity Research

On Dec 7, we issued an updated research report on OH-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 #3 (Hold).

Throughout the last six months, Steris underperformed the Zacks categorized Medical Instrument Market with respect to price movement. Situation deteriorated further in November with Steris reporting a dismal second-quarter fiscal 2017 performance with respect to both earnings and revenues. Lowered revenue guidance for fiscal 2017 is indicating a further slash in the share price return performance.

Also, the earnings estimate revision trend was down 3% over the last one month. As per the last trading price, the company's stock lost 8.1% as compared to 6.3% loss of the broader industry over the last six months.



However, in the face of currency and market headwinds, STERIS’ business grew both organically and through strategic acquisitions. Synergy Health – acquired last year – was one of the primary contributors to the strong double-digit revenue growth of the combined company. Management expects Synergy to contribute between $640–$650 million in fiscal 2017 which translates into low-single-digit sales growth.

STERIS has always been on track with its strategy of acquisitions for growth. In Jul 2016, the company bought Medisafe Holdings, which is a U.K.-based manufacturer of washer disinfector equipment and also markets related consumables and services. Per management, Medisafe’s products and services complement STERIS’ global healthcare offering by providing washer R&D and production in the U.K.

However, currency has been a major obstacle to STERIS' growth for quite some time. Also, with rapidly aging population a greater number of individuals are entering into their prime healthcare consumption years. Yet, governments and insurance companies’ consistent efforts to contain the rising cost of healthcare, has been putting a lot of pressure on STERIS. Moreover, customer consolidation remains a concern.

Zacks Rank and Key Picks

STERIS currently holds a Zacks Rank #4 (Sell). Some favorably ranked medical stocks are NxStage Medical Inc. NXTM, Baxter International Inc. BAX and Bovie Medical Corporation BVX. NxStage Medical and Baxter International sport a Zacks Rank #1 (Strong Buy) while Bovie Medical carries a Zacks Rank #2 (Buy). You can seethe complete list of today’s Zacks #1 Rank stocks here.

NxStage Medical surged 29.9% over the last one year compared to the S&P 500’s 9.5% over the same period. The company has a four-quarter average positive earnings surprise of 46.3%.

Baxter International rallied 23.9% over one year, much higher than the S&P 500. It has a trailing four-quarter average positive earnings surprise of 27%.

Bovie Medical recorded a 119.4% gain in the past one year, way better than the S&P 500’s 5.9%. The company has a trailing four-quarter positive average earnings surprise of 28.7%.

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