STERIS (STE) Grapples With Headwinds: Should You Dump?

On May 10, we issued an updated research report on STERIS Plc (NYSE:STE) . The company develops, manufactures and markets infection prevention, decontamination, microbial reduction, and surgical and gastrointestinal support products and services. STERIS currently has a Zacks Rank #4 (Sell).

For the past one year, STERIS has been trading below the Zacks categorized Medical Instrument industry. The stock has gained 5.6%, way lower than the 12.8% gain of the broader industry We are also apprehensive about the bleak prospects as the company recently slashed its fiscal 2018 revenue guidance. The company expects revenues to decline 2%–3% in fiscal 2018 from the prior fiscal on apprehensions of an impact from divested businesses and adverse foreign currency movements. Further, currency and market headwinds continue to raise concern.

We are also apprehensive about the strong competition that STERIS faces. This is because it competes for pharmaceutical, research and industrial customers against several large companies that have strong product portfolios and extensive global reach. It also competes against a number of small companies with limited product offerings and operations.

Moreover, the current global macroeconomic scenario has affected STERIS’ financial operations. Governments and insurance companies continue to look for ways to control the rising expenses related to healthcare. Moreover, foreign exchange pressure on profits is expected to persist in the first half of fiscal 2018.

On a positive note, organic growth continues to be strong across most segments. Further, growth in free cash flow is indicative of the company’s strong cash balance. Also, Synergy Health — acquired by STERIS last year — contributed significantly to the company’s top line in the recently reported fiscal 2017.

Zacks Rank & Key Picks

Better-ranked medical stocks include Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN) , Bio-Rad Laboratories, Inc. (NYSE:BIO) and Baxter International Inc. (NYSE:BAX) . Regeneron Pharmaceuticals, Bio-Rad Laboratories and Baxter International sport a Zacks Rank 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Regeneron Pharmaceuticals rose 19.2% in the last one year, in comparison to the S&P 500’s 17.1%. It has a trailing four-quarter average positive earnings surprise of 0.45%.

Bio-Rad Laboratories surged 54.5% in the past one year, better than the S&P 500 mark. It has a four-quarter average earnings surprise of 13.10%.

Baxter International rose 23.8% in the last one year, in comparison to the S&P 500 mark. It has a four-quarter average positive earnings surprise of 17.14%.

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