STERIS: Synergy Health Deal To Drive Growth, Competition Rife

On Jun 28, we issued an updated research report on Ohio-based STERIS plc (NYSE:STE) , manufacturer and marketer of infection prevention, decontamination, microbial reduction, and surgical and gastrointestinal support products and services. The company currently carries a Zacks Rank #3 (Hold).

STERIS acquired Synergy Health plc last year. The mega buyout has proven to be a success for its legacy business. The transaction created a new global leader in infection prevention and sterilization, which will offer improved healthcare services to medical device companies, pharma companies, hospitals and other healthcare facilities across the globe.

Going ahead, management expects Synergy acquisition to contribute $640–$650 million in revenues, which translates into low-single-digit growth, to the company’s operations in fiscal 2017. Management also provided a strong guidance for the overall business in 2017.

The bulk of STERIS’ revenues are generated in the healthcare and pharmaceutical markets, where growth is primarily driven by the aging global population. With life expectancy on the rise, a larger aging population increases the demand for medical procedures. This, in turn, drives the consumption of single-use medical devices and surgical kits processed by STERIS’ Isomedix segment.

Given the continued success of the company’s varied medical equipment, we believe that STERIS holds significant potential to expand its foothold in these markets.

On the flip side, the company expects to competition to continue, going ahead, due to the entry of new infection prevention, sterile processing, contamination control, gastrointestinal and surgical support products and services in the market. Moreover, currency headwinds have been hampering STERIS’ overseas growth for quite some time now, a trend which will likely continue.

Customer consolidation is a major concern for STERIS as well, partly due to healthcare cost reduction measures initiated to combat competitive pressures, along with legislators, regulators and third-party payors. Besides lingering macroeconomic softness like the ongoing turmoil in the Middle East, due to fluctuating oil prices, could hurt growth significantly.

Stocks to Consider

Some better-ranked medical stocks are Boston Scientific Corporation (NYSE:BSX) , ICU Medical, Inc. (NASDAQ:ICUI) and LeMaitre Vascular, Inc. (NASDAQ:LMAT) . All these stocks carry a Zacks Rank #2 (Buy).