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Here's Why Investors Should Retain STERIS (STE) Stock for Now
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STERIS plc (STE - Free Report) has been gaining from strong segmental growth. The integration of Cantel Medical continued successfully, strengthening STERIS’ Endoscopy offerings. However, a challenging macroeconomic environment and stiff competition raise apprehension.
In the past year, shares of this Zacks Rank #3 (Hold) company have declined 13.9% compared with the industry’s 2.9% plunge and the S&P 500’s 3.4% fall.
The renowned provider of infection prevention, other procedural products and services has a market capitalization of $19.90 billion. The company’s projected earnings growth rate of 11% for the next year compares with the industry’s growth projection of 13.8%.
Let’s delve deeper.
Factors at Play
Q4 Upside: STERIS exited fourth-quarter fiscal 2023 with earnings and revenue beat. Constant-currency organic revenues increased 16%, driven by volume and a 330 basis points favorable impact of price. Barring Dental, each of STERIS’s operating segments reported robust organic revenue performance. The company generated 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.
Heading into fiscal 2024, the company is optimistic that many of the challenges of fiscal 2023 are abating, including procedure volumes and supply chain constraints. For fiscal 2024, total revenues are expected to grow 7-8%, with about a 100 basis points in positive foreign currency impact. Constant-currency organic revenues are expected to increase 6-7%. That includes about 200 basis points in favorable pricing. Gross margins are expected to increase modestly as some of the headwinds faced in fiscal 2023 abate.
Strong Segmental Business: In the fourth quarter of fiscal 2023, organic revenues increased 16% year over year, led by robust sales across the company’s Healthcare and AST segments. 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.
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Overall Strong Solvency Position: STERIS exited the fourth quarter of fiscal 2023 with cash and cash equivalents of $208.4 million compared with $249 million at the end of the fiscal third quarter. Total debt at the end of fiscal Q4 was $3.02 billion compared with $3.06 billion at fiscal Q3 end. Although the quarter’s total debt exceeds the cash and cash equivalent, the company has no short-term debt on its balance sheet. This is good news for its solvency level during the time of economic downturn, when companies are facing supply disruption and staffing issues. At the end of the fiscal fourth quarter, total debt-to-capital of 33.1% stands at a moderately high level right now. This ratio was down from 33.6% in the last reported quarter.
Downsides
Tough Competition: STERIS competes for pharmaceutical, research and industrial customers against several large and small companies. The company expects to face continued competition as new infection prevention, sterile processing, contamination control, gastrointestinal and surgical support products and services enter the market.
Pricing Pressure: STERIS purchases raw materials and energy supplies from various suppliers, the availability and price of which are subject to volatility. Changes in regulatory requirements, unavailability or short supply of these products might disrupt STERIS’ AST operations, in addition to other consequences.
Estimate Trends
In the past 90 days, the Zacks Consensus Estimate for STERIS’ fiscal 2024 earnings has moved 3.4% down to $8.65.
The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $5.33 billion, suggesting a 7.5% growth from fiscal 2023 reported number.
Merit Medical Systems has an estimated long-term growth rate of 11%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 20.22%.
So far this year, MMSI’s shares have risen 18.9% compared with the industry’s 8.7% growth.
West Pharmaceutical Services has an estimated long-term growth rate of 6.3%. Its earnings surpassed estimates in three of the trailing four quarters and missed the same once, the average surprise being 13.61%.
So far this year, WST’s shares have gained 49.1% compared with the industry’s 8.7% growth.
Perrigo’s earnings are expected to improve 24.2% in 2023. The strong momentum is likely to continue in 2024 as well. PRGO’s earnings surpassed estimates in two of the trailing four quarters and missed the same twice, the average negative surprise being 0.79%.
The company has lost 1.9% so far this year against the industry’s 4.8% growth.
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Here's Why Investors Should Retain STERIS (STE) Stock for Now
STERIS plc (STE - Free Report) has been gaining from strong segmental growth. The integration of Cantel Medical continued successfully, strengthening STERIS’ Endoscopy offerings. However, a challenging macroeconomic environment and stiff competition raise apprehension.
In the past year, shares of this Zacks Rank #3 (Hold) company have declined 13.9% compared with the industry’s 2.9% plunge and the S&P 500’s 3.4% fall.
The renowned provider of infection prevention, other procedural products and services has a market capitalization of $19.90 billion. The company’s projected earnings growth rate of 11% for the next year compares with the industry’s growth projection of 13.8%.
Let’s delve deeper.
Factors at Play
Q4 Upside: STERIS exited fourth-quarter fiscal 2023 with earnings and revenue beat. Constant-currency organic revenues increased 16%, driven by volume and a 330 basis points favorable impact of price. Barring Dental, each of STERIS’s operating segments reported robust organic revenue performance. The company generated 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.
Heading into fiscal 2024, the company is optimistic that many of the challenges of fiscal 2023 are abating, including procedure volumes and supply chain constraints. For fiscal 2024, total revenues are expected to grow 7-8%, with about a 100 basis points in positive foreign currency impact. Constant-currency organic revenues are expected to increase 6-7%. That includes about 200 basis points in favorable pricing. Gross margins are expected to increase modestly as some of the headwinds faced in fiscal 2023 abate.
Strong Segmental Business: In the fourth quarter of fiscal 2023, organic revenues increased 16% year over year, led by robust sales across the company’s Healthcare and AST segments. 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.
Overall Strong Solvency Position: STERIS exited the fourth quarter of fiscal 2023 with cash and cash equivalents of $208.4 million compared with $249 million at the end of the fiscal third quarter. Total debt at the end of fiscal Q4 was $3.02 billion compared with $3.06 billion at fiscal Q3 end. Although the quarter’s total debt exceeds the cash and cash equivalent, the company has no short-term debt on its balance sheet. This is good news for its solvency level during the time of economic downturn, when companies are facing supply disruption and staffing issues. At the end of the fiscal fourth quarter, total debt-to-capital of 33.1% stands at a moderately high level right now. This ratio was down from 33.6% in the last reported quarter.
Downsides
Tough Competition: STERIS competes for pharmaceutical, research and industrial customers against several large and small companies. The company expects to face continued competition as new infection prevention, sterile processing, contamination control, gastrointestinal and surgical support products and services enter the market.
Pricing Pressure: STERIS purchases raw materials and energy supplies from various suppliers, the availability and price of which are subject to volatility. Changes in regulatory requirements, unavailability or short supply of these products might disrupt STERIS’ AST operations, in addition to other consequences.
Estimate Trends
In the past 90 days, the Zacks Consensus Estimate for STERIS’ fiscal 2024 earnings has moved 3.4% down to $8.65.
The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $5.33 billion, suggesting a 7.5% growth from fiscal 2023 reported number.
Key Picks
Some better-ranked stocks from the broader medical space are Merit Medical Systems (MMSI - Free Report) , West Pharmaceutical Services (WST - Free Report) and Perrigo (PRGO - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Merit Medical Systems has an estimated long-term growth rate of 11%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 20.22%.
So far this year, MMSI’s shares have risen 18.9% compared with the industry’s 8.7% growth.
West Pharmaceutical Services has an estimated long-term growth rate of 6.3%. Its earnings surpassed estimates in three of the trailing four quarters and missed the same once, the average surprise being 13.61%.
So far this year, WST’s shares have gained 49.1% compared with the industry’s 8.7% growth.
Perrigo’s earnings are expected to improve 24.2% in 2023. The strong momentum is likely to continue in 2024 as well. PRGO’s earnings surpassed estimates in two of the trailing four quarters and missed the same twice, the average negative surprise being 0.79%.
The company has lost 1.9% so far this year against the industry’s 4.8% growth.