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Should You Hold STERIS (STE) Stock Now? Here's What to Consider
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STERIS plc (STE - Free Report) stands to benefit from the growing pharmaceutical and healthcare industries in the upcoming quarters, supported by favorable dynamics as well as strategic additions. The Healthcare arm is gaining from the positive volume environment in the United States and capturing market share. Also, the strong rebound prospects of Applied Sterilization Technologies (“AST”) are encouraging.
Meanwhile, the impacts of macroeconomic challenges and increasing consolidation in the industry pose a worry for the stock.
In the past year, shares of this Zacks Rank #3 (Hold) company have fallen 1.3% against the industry’s 1.6% growth and the S&P 500’s 27.8% rise.
The renowned provider of infection prevention and other procedural products and services has a market capitalization of $21.75 billion. The company has an earnings yield of 4.20% compared to the industry’s -5.82%. In the trailing four quarters, STE delivered an average earnings surprise of 2.21%.
Let’s delve deeper.
Factors at Play
Progress in Healthcare and Pharmaceutical Industries: STERIS derives a majority of its revenues from the healthcare and pharmaceutical industries, which are fueled by factors such as an aging global population, advancement in healthcare delivery, acceptance of new technologies, government policies and general economic conditions. Increased concern over hospital-acquired infections around the world and the rising demand for medical procedures such as endoscopies and colonoscopies for more efficient healthcare operations are driving up the demand for STE’s products and services.
Moreover, STERIS has been expanding its business through strategic acquisitions like Key Surgical in 2020, Cantel Medical in 2021 and most recently Becton, Dickinson and Company’s (BD) surgical instrumentation, laparoscopic instrumentation and sterilization container assets in fiscal 2023. The acquisition strengthens, complements and expands the company’s Healthcare product offerings with renowned brands like V. Mueller, Snowden-Pencer and Genesis.
Optimistic Forecast for the AST Segment: The business offers a wide range of sterilization modalities through a worldwide network of more than 50 contract sterilization and laboratory facilities. In fiscal 2024, the AST division faced temporary setbacks, mainly due to inventory destocking in some categories of MedTech and the decline in customer demand for bioprocessing. Since the fiscal third quarter, there have been positive signs of recovery in the MedTech demand, especially in the United States, driven by the improving procedure environment and the burndown of customer inventory.
Image Source: Zacks Investment Research
Despite modest 3% constant currency organic growth for the year, AST saw significant improvements in service revenues, particularly double-digit growth in the United States. The stabilization in bioprocessing demand is a positive step forward. However, STERIS does not expect to return to meaningful bioprocessing growth until the second half of fiscal 2025. Moreover, the company anticipates high-single-digit growth in the segment, with growth accelerating in the second half of the year.
Promising Healthcare Business: The Healthcare segment is gaining from the successful market adoption of its comprehensive offerings, including infection prevention consumables and capital equipment. Over the past few quarters, the segment’s organic growth has been driven by the continuous procedure volume growth in the United States and favorable pricing and market share gains.
Fiscal 2024 concluded with Healthcare achieving 13% constant currency organic revenue growth, its third consecutive year of double-digit expansion. The success was fueled by the actions of its operations teams to reduce lead times and return the backlog to normal levels. By the fourth quarter, the lead times returned to pre-pandemic levels for the first time in two years. Also, the addition of BD’s assets boosted the segment’s operating income.
Downsides
Macroeconomic Problems: The current global macroeconomic environment is challenging for STERIS’ financial operations. Governments and insurance companies continue to look for ways to contain the rising cost of healthcare, which creates pressure on healthcare companies like STERIS. Increases in prices or decreases in the availability of raw materials and oil and gas might impair STERIS’ procurement of necessary materials for product manufacture or might increase production costs.
In addition, economic and market volatility has been affecting the investment portfolio of STERIS’ legacy defined benefit pension plan. We are concerned that lingering macroeconomic softness might hamper STERIS’ growth.
Customer Consolidation: A number of STERIS’ customers are undergoing consolidation, partly due to healthcare cost reduction measures initiated by competitive pressures as well as legislators, regulators and third-party payors. Moreover, some of STERIS’ customers have cut their production costs and product prices to attract more clients, leading to greater pricing pressure and customer loss for the company.
Recent healthcare legislation and unfavorable economic conditions might enforce larger consolidation. If the company fails to check the rate of its customer consolidation now, it will adversely affect STERIS’ business performance as well as financial conditions going forward.
Estimate Picture
In the past 30 days, the Zacks Consensus Estimate for STERIS’ fiscal 2025 earnings has remained constant at $9.25.
The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $5.48 billion, which suggests 1.4% growth from the fiscal 2024 reported number.
Hims & Hers Health’s earnings are expected to surge 281.8% in 2024 compared with the industry’s 15.7%. HIMS’ earnings surpassed estimates in three of the trailing four quarters and missed in one, delivering an average surprise of 79.2%. Its shares have surged 141.3% against the industry’s 27.1% decline in the past year.
Medpace, carrying a Zacks Rank #2 (Buy) at present, has an estimated 2024 earnings growth rate of 27.1% compared with the industry’s 13.1%. Shares of MEDP have rallied 66.4% compared with the industry’s 5% growth over the past year.
MEDP’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 12.8%. In the last reported quarter, it delivered an earnings surprise of 30.6%.
ResMed, also carrying a Zacks Rank #2 at present, has an estimated fiscal 2024 earnings growth rate of 19.6% compared with the industry’s 12.9%. Shares of RMD have dropped 10.1% compared with the industry’s 1.7% decline over the past year.
RMD’s earnings surpassed estimates in three of the trailing four quarters and missed in one, delivering an average surprise of 2.8%. In the last reported quarter, it delivered an earnings surprise of 10.9%.
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Should You Hold STERIS (STE) Stock Now? Here's What to Consider
STERIS plc (STE - Free Report) stands to benefit from the growing pharmaceutical and healthcare industries in the upcoming quarters, supported by favorable dynamics as well as strategic additions. The Healthcare arm is gaining from the positive volume environment in the United States and capturing market share. Also, the strong rebound prospects of Applied Sterilization Technologies (“AST”) are encouraging.
Meanwhile, the impacts of macroeconomic challenges and increasing consolidation in the industry pose a worry for the stock.
In the past year, shares of this Zacks Rank #3 (Hold) company have fallen 1.3% against the industry’s 1.6% growth and the S&P 500’s 27.8% rise.
The renowned provider of infection prevention and other procedural products and services has a market capitalization of $21.75 billion. The company has an earnings yield of 4.20% compared to the industry’s -5.82%. In the trailing four quarters, STE delivered an average earnings surprise of 2.21%.
Let’s delve deeper.
Factors at Play
Progress in Healthcare and Pharmaceutical Industries: STERIS derives a majority of its revenues from the healthcare and pharmaceutical industries, which are fueled by factors such as an aging global population, advancement in healthcare delivery, acceptance of new technologies, government policies and general economic conditions. Increased concern over hospital-acquired infections around the world and the rising demand for medical procedures such as endoscopies and colonoscopies for more efficient healthcare operations are driving up the demand for STE’s products and services.
Moreover, STERIS has been expanding its business through strategic acquisitions like Key Surgical in 2020, Cantel Medical in 2021 and most recently Becton, Dickinson and Company’s (BD) surgical instrumentation, laparoscopic instrumentation and sterilization container assets in fiscal 2023. The acquisition strengthens, complements and expands the company’s Healthcare product offerings with renowned brands like V. Mueller, Snowden-Pencer and Genesis.
Optimistic Forecast for the AST Segment: The business offers a wide range of sterilization modalities through a worldwide network of more than 50 contract sterilization and laboratory facilities. In fiscal 2024, the AST division faced temporary setbacks, mainly due to inventory destocking in some categories of MedTech and the decline in customer demand for bioprocessing. Since the fiscal third quarter, there have been positive signs of recovery in the MedTech demand, especially in the United States, driven by the improving procedure environment and the burndown of customer inventory.
Image Source: Zacks Investment Research
Despite modest 3% constant currency organic growth for the year, AST saw significant improvements in service revenues, particularly double-digit growth in the United States. The stabilization in bioprocessing demand is a positive step forward. However, STERIS does not expect to return to meaningful bioprocessing growth until the second half of fiscal 2025. Moreover, the company anticipates high-single-digit growth in the segment, with growth accelerating in the second half of the year.
Promising Healthcare Business: The Healthcare segment is gaining from the successful market adoption of its comprehensive offerings, including infection prevention consumables and capital equipment. Over the past few quarters, the segment’s organic growth has been driven by the continuous procedure volume growth in the United States and favorable pricing and market share gains.
Fiscal 2024 concluded with Healthcare achieving 13% constant currency organic revenue growth, its third consecutive year of double-digit expansion. The success was fueled by the actions of its operations teams to reduce lead times and return the backlog to normal levels. By the fourth quarter, the lead times returned to pre-pandemic levels for the first time in two years. Also, the addition of BD’s assets boosted the segment’s operating income.
Downsides
Macroeconomic Problems: The current global macroeconomic environment is challenging for STERIS’ financial operations. Governments and insurance companies continue to look for ways to contain the rising cost of healthcare, which creates pressure on healthcare companies like STERIS. Increases in prices or decreases in the availability of raw materials and oil and gas might impair STERIS’ procurement of necessary materials for product manufacture or might increase production costs.
In addition, economic and market volatility has been affecting the investment portfolio of STERIS’ legacy defined benefit pension plan. We are concerned that lingering macroeconomic softness might hamper STERIS’ growth.
Customer Consolidation: A number of STERIS’ customers are undergoing consolidation, partly due to healthcare cost reduction measures initiated by competitive pressures as well as legislators, regulators and third-party payors. Moreover, some of STERIS’ customers have cut their production costs and product prices to attract more clients, leading to greater pricing pressure and customer loss for the company.
Recent healthcare legislation and unfavorable economic conditions might enforce larger consolidation. If the company fails to check the rate of its customer consolidation now, it will adversely affect STERIS’ business performance as well as financial conditions going forward.
Estimate Picture
In the past 30 days, the Zacks Consensus Estimate for STERIS’ fiscal 2025 earnings has remained constant at $9.25.
The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $5.48 billion, which suggests 1.4% growth from the fiscal 2024 reported number.
Key Picks
Some better-ranked stocks in the broader medical space are Hims & Hers Health (HIMS - Free Report) , Medpace (MEDP - Free Report) and ResMed (RMD - Free Report) .
Hims & Hers Health’s earnings are expected to surge 281.8% in 2024 compared with the industry’s 15.7%. HIMS’ earnings surpassed estimates in three of the trailing four quarters and missed in one, delivering an average surprise of 79.2%. Its shares have surged 141.3% against the industry’s 27.1% decline in the past year.
HIMS sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Medpace, carrying a Zacks Rank #2 (Buy) at present, has an estimated 2024 earnings growth rate of 27.1% compared with the industry’s 13.1%. Shares of MEDP have rallied 66.4% compared with the industry’s 5% growth over the past year.
MEDP’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 12.8%. In the last reported quarter, it delivered an earnings surprise of 30.6%.
ResMed, also carrying a Zacks Rank #2 at present, has an estimated fiscal 2024 earnings growth rate of 19.6% compared with the industry’s 12.9%. Shares of RMD have dropped 10.1% compared with the industry’s 1.7% decline over the past year.
RMD’s earnings surpassed estimates in three of the trailing four quarters and missed in one, delivering an average surprise of 2.8%. In the last reported quarter, it delivered an earnings surprise of 10.9%.