STERIS Rides On Favorable Industry Trends, Rivalry A Concern

On Dec 11, we issued an updated research report on STERIS plc (NYSE:STE) . The company has been actively trying to expand into the adjacent markets and strengthen its core business through acquisitions and dilutions. The stock currently carries a Zacks Rank #2 (Buy).

Over the past three months, shares of STERIS have outperformed its industry. The stock has gained 6.7% versus the 6.9% decline of the industry.

STERIS exited second-quarter fiscal 2019 on a promising note with both earnings and revenues exceeding the Zacks Consensus Estimate. We are impressed by the company’s consistently strong organic growth across major segments.

Particularly, the company is demonstrating a solid performance within its infection prevention and sterilization wing, globally. The company is currently providing improved healthcare services to medical device companies, pharma companies, hospitals and other healthcare facilities around the world. Moreover, the consolidation with Synergy Health has boosted STERIS' presence in the international markets. It has also provided the company with an opportunity to better serve the emerging markets of Asia-Pacific and Latin America.

The company is currently exhibiting a sturdy top-line improvement on favorable market trends along with new product and service offerings. The bulk of STERIS’ revenues is obtained from the healthcare and pharmaceutical industries. Growth in these industries is primarily driven by the aging of the global population as individuals are increasingly entering their prime healthcare consumption years. Further, these industries are dependent on advancement in healthcare delivery, acceptance of new technologies, government policies and general economic conditions. With life expectancy has risen globally, a larger greying populace bumps up demand for medical procedures. This, in turn, translates into higher consumption of single-use medical devices and surgical kits processed by STERIS.

Further, growth in free cash flow reserve is indicative of the company’s strong cash balance. The company’s raising of its overall guidance for fiscal 2019 also hints at brighter prospects.

On the flip side, a tough competitive landscape and currency headwinds persistently pose threats to STERIS. A fierce competition looming large bothers the company as new infection prevention, sterile processing, contamination control, gastrointestinal and surgical support products plus services flood the market. This might further hinder STERIS' growth considerably.

Moreover, multiple STERIS' clients are undergoing consolidation, partly due to healthcare cost-reduction measures, initiated by competitive pressures apart from legislators, regulators and third-party payors. We presume that if the company fails to check its customer consolidation rate now, it will adversely impact its business as well as the finances.

Other Key Picks

Some other top-ranked stocks in the broader medical space are Veeva Systems (NYSE:VEEV) , Integer Holdings Corporation (NYSE:ITGR) and Surmodics, Inc (NASDAQ:SRDX) .

Veeva Systems’ long-term earnings growth rate is estimated at 19.2%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Integer Holdings has an earnings growth rate of 30.3% for 2018 and a Zacks Rank of 2.

Surmodics’ long-term earnings growth rate is projected at 10%. The stock is a Zacks #2 Rank of 2.

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