STERIS plc STE is well poised for growth in the coming months, backed by strong segmental performance. Further, the bullish fiscal 2022 outlook is encouraging. However, stiff competition and macroeconomic problems are concerning.
In the past year, shares of this Zacks Rank #3 (Hold) company have gained 23.1% versus the industry’s 7.8% fall. The S&P 500 rose 19.2% during the same period.
The renowned provider of infection prevention as well as other procedural products and services has a market capitalization of $23.19 billion. The company projects 12.7% growth for the next year.
Riding on current business growth and bullish near-term prospects, the company is worth holding on to for now.
Factors at Play
Strong Segmental Business Amid Pandemic: In the second quarter of fiscal 2022, revenues improved 58.3% year over year while organic revenues at constant currency or CER rose 12% year over year. Meanwhile, revenues at Healthcare rose 58% year over year on a 120% increase in consumable revenues, a 25% uptick in service revenues and a 54% improvement in capital equipment revenues. Revenues at AST improved 21% on a reported basis and 19%, at CER organic basis. Revenues at the Life Sciences segment rose 14% year over year on 8% growth in capital equipment revenues and a 17% rise in service revenues. The Dental segment reported 10% growth for the quarter.
Infection Prevention & Sterilization Wing Grow Globally: With the acquisition of U.K.-based outsourced sterilization services provider Synergy Health, STERIS has become the new global leader in infection prevention and sterilization. The company is currently providing improved healthcare services to medical device companies, pharma companies, hospitals and other healthcare facilities across the globe.
The company continues to benefit from the acquisition of Synergy Health. The consolidation, since its inception, has boosted STERIS' presence in international markets as it combines STERIS’ strong presence in North America with Synergy's solid footprint across Europe. It has also provided STERIS an opportunity to better serve the emerging markets of Asia-Pacific and Latin America.
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Bullish Guidance: STERIS expects constant currency organic revenue growth in the range of 10-11% for fiscal 2022. Adjusted earnings per diluted share are anticipated in the band of $7.60-$7.85.
Downsides
On the flip side, some factors have been deterring the stock’s rally of late.
Competitive Landscape: STERIS expects to face continued competition as new infection prevention, sterile processing, contamination control, gastrointestinal and surgical support products and services enter the market.
Macroeconomic Problems: The current macroeconomic environment across the globe has affected STERIS’ financial operations. Governments and insurance companies continue to look for ways to contain the rising cost of healthcare. This might put pressure on players in the healthcare industry, with STERIS being no exception.
Estimate Trends
STERIS is witnessing a positive estimate revision trend for the current year. In the past 90 days, the Zacks Consensus Estimate for earnings has moved 0.9% north to $7.77.
The Zacks Consensus Estimate for third-quarter fiscal 2022 revenues is pegged at $1.21 billion, suggesting 49.7% growth from the year-ago quarter’s reported number.
Key Picks
A few better-ranked stocks in the broader medical space that investors can consider are AMN Healthcare Services (NYSE:AMN), Inc. AMN, Apollo Endosurgery (NASDAQ:APEN), Inc. APEN and Laboratory Corporation of America (NYSE:LH) Holdings LH.
AMN Healthcare, sporting a Zacks Rank #1 (Strong Buy) at present, has a long-term earnings growth rate of 16.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 19.5%, on average. You can see the complete list of today's Zacks #1 Rank stocks here.
AMN Healthcare has outperformed its industry over the past year. AMN has gained 36.3% versus the industry’s 59.3% decline.
Apollo Endosurgery, currently carrying a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 7%. The company‘s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 25.6%, on average.
Apollo Endosurgery has outperformed its industry in the past year. APEN has gained 45.2% versus the industry’s 7.8% fall.
Laboratory Corporation surpassed earnings estimates in each of the trailing four quarters, the average surprise being 25.7%. The company currently sports a Zacks Rank #1.
Laboratory Corporation’s long-term earnings growth rate is estimated at 10.6%. The company’s earnings yield of 9.4% compares favorably with the industry’s 3.4%.
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Laboratory Corporation of America Holdings (LH): Free Stock Analysis Report
AMN Healthcare Services (NASDAQ:HCSG) Inc (AMN): Free Stock Analysis Report
STERIS plc (STE): Free Stock Analysis Report
Apollo Endosurgery, Inc. (APEN): Free Stock Analysis Report
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