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STERIS (STE) Continues to Face Dull Dental Sales, Margin Woes

STERIS STE is suffering due to weak cost-reduction initiatives and a tough competitive landscape. Dental sales continue to remain dull. The stock carries a Zacks Rank #4 (Sell).

STERIS’ dull Dental revenue performance in the fourth quarter of fiscal 2023 posed concerns. Gross margin in the fourth quarter decreased 240 basis points to 43.1% as pricing and currency were more than offset by an unfavorable mix and approximately $15 million in excess material labor inflation. STERIS incurred approximately $90 million in higher material and labor costs during fiscal 2023.

Meanwhile, STERIS competes for pharmaceutical, research and industrial customers against several large companies that have robust product portfolios and global reach, 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, Ecolab, Getinge, Go Jo, Johnson & Johnson, Kimberly-Clark, Skytron and Stryker.

STERIS has underperformed the industry over the past year. The stock lost 6% in this period as against a 4.7% improvement of the industry.

STERIS plc Price

STERIS plc Price
STERIS plc Price

STERIS plc price | STERIS plc Quote

On a positive note, STERIS exited fourth-quarter fiscal 2023 with earnings and revenue beat. Constant currency organic revenues increased 16%, driven by volume as well as a 330 basis points favorable impact of price. Barring Dental, each of STERIS’s operating segments reported robust organic revenue performance, which is encouraging.

In the fourth quarter of fiscal 2023, revenues at Healthcare rose 20% with a 31% improvement in capital equipment revenues, a 15% increase in consumable revenues and a 15% increase in service revenues. Revenues at AST improved 7% banking on increased demand from core medical device customers, despite a reduction in demand for single-use bioprocessing customers.

The company achieved approximately $10 million of cost synergies from the integration of Cantel Medical in the fourth quarter, bringing its full-year total cost synergy to more than $55 million.

Key Picks

Some better-ranked stocks in the broader medical space are Addus Homecare Corporation ADUS, Merit Medical Systems, Inc. MMSI and Davita Inc DVA.

The Zacks Consensus Estimate for Addus Homecare’s 2023 earnings indicates 10.9% year-over-year growth. The Zacks Consensus Estimate for ADUS’ 2023 earnings has moved 0.5% north in the past 30 days.

Addus Homecare, with a Zacks Rank #2 (Buy), has a long-term estimated growth rate of 11.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Merit Medical reported first-quarter 2023 adjusted EPS of 64 cents, beating the Zacks Consensus Estimate by 16.4%. Revenues of $297.6 million surpassed the Zacks Consensus Estimate by 5.9%. It currently carries a Zacks Rank #2.

Merit Medical has a long-term estimated growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 20.2%.

DaVita, carrying a Zacks Rank #2 at present, has a long-term estimated growth rate of 14.6%. DVA’s earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 17.3%.

DaVita has lost 1.9% compared with the industry’s 18% decline over the past year.

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Merit Medical Systems, Inc. (MMSI) : Free Stock Analysis Report

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Addus HomeCare Corporation (ADUS) : Free Stock Analysis Report

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