STERIS (STE) Banks on New Pact for Growth Amid Rising Expenses
STERIS STE continues to gain market share banking on innovation and strategic deals. Yet, a competitive landscape and mounting expenses are worrisome. The stock carries a Zacks Rank #3 (Hold).
Over the past year, its shares have outperformed the industry. The stock gained 16.6% during this period, compared with a 2.9% rise of the industry.
STERIS’ Healthcare segment is gaining from the successful market adoption of its comprehensive offerings, including infection prevention consumables and capital equipment. Further, its services to maintain equipment, repair reusable procedural instruments and outsource instrument reprocessing services are gaining traction. Continuous procedure volume growth in the United States, and favorable pricing and market share gains are driving the segment’s organic growth.
On the capital equipment side, the easing of supply-chain issues and reduced lead times led to strong shipments in the first quarter of fiscal 2024. The company’s robust capital spending shows that nearly 40% of first-quarter orders were made toward large projects.
STERIS plc Price
STERIS plc price | STERIS plc Quote
The bulk of STERIS’ revenues are obtained from the 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.
Further these industries are dependent upon advancement in healthcare delivery, acceptance of new technologies, government policies and general economic conditions. With life expectancy on the rise globally, a larger aging population increases the demand for medical procedures. This, in turn, translates into higher consumption of single-use medical devices and surgical kits processed by STERIS.
In June 2023, the company signed a definitive agreement to purchase the surgical instrumentation, laparoscopic instrumentation and sterilization container assets from Becton, Dickinson and Company or BD. The acquisition will strengthen, complement and expand STERIS’ Healthcare product offerings, with the addition of renowned brands like V. Mueller, Snowden-Pencer and Genesis. Management expects to close the transaction ahead of September 2023. To reflect the transaction, the company has released an updated outlook for fiscal 2024.
On the flip side, despite the strong underlying demand for the Life Science business, the timing of capital shipments marred revenue growth in the fiscal first quarter. The segment’s performance reflected a 4% increase in consumable revenues and a 20% increase in service revenues, more than offset by a 23% decline in capital equipment revenues compared with a strong first-quarter fiscal 2023.
The Dental segment has been witnessing an improvement in the patient volume for the first time since the pandemic. However, the business’ fiscal first-quarter revenue growth was dented by customer destocking of inventory, particularly for infection control products.
The company’s fiscal 2024 outlook suggests mid-single-digit and low-single-digit revenue growth for the Life Sciences and Dental segments, respectively.
The company has been bearing the brunt of increasing operating expenses over the past few quarters. SG&A expenses rose 7.3%, while R&D expenses increased 3% in the fiscal first quarter. Continued material and labor inflation, as well as lower productivity, resulted in a decline in the gross margin.
Key Picks
Some better-ranked stocks in the broader medical space are HealthEquity HQY, Quanterix QTRX and SiBone SIBN, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of HealthEquity have risen 3.6% in the past year. Earnings estimates for HQY have remained constant at $1.92 for 2023 and moved from $2.47 to $2.48 for 2024 in the past 30 days.
HQY’s earnings beat estimates in three of the trailing four quarters and missed the same in one, delivering an average surprise of 9.10%. In the last reported quarter, it posted an earnings surprise of 21.95%.
Estimates for Quanterix’s 2023 loss per share have narrowed from $1.16 to 97 cents in the past 30 days. Shares of the company have increased 171.5% in the past year against the industry’s decline of 0.9%.
QTRX’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 30.39%. In the last reported quarter, it posted an earnings surprise of 55.56%.
Estimates for SiBone’s2023 loss have narrowed from $1.42 to $1.27 per share in the past 30 days. Shares of the company have increased 32.9% in the past year compared with the industry’s rise of 3.5%.
SIBN’s earnings beat estimates in all the trailing four quarters, the average surprise being 20.37%. In the last reported quarter, SiBone delivered an earnings surprise of 26.83%.
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