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STERIS (STE) Hits a New 52-Week High: What's Driving It?

STERIS plc STE scaled a new 52-week high of $232.53 on Oct 21, before closing the session marginally lower at $232.28.

The company’s shares have charted a solid trajectory in recent times, appreciating 23.9% over the past year, ahead of the 13.2% rise of the industry it belongs to. However, the S&P 500 composite surged 32.4% in the same period.

Over the past five years, the company registered earnings growth of 12.7%, way ahead of the industry’s 2.6% rise and the S&P 500’s 2.8% increase. The company’s projected growth rate of 12.6% for the next year, although lagging the industry’s growth projection of 22.5%, exceeds the S&P 500’s 9.8% increase.

STERIS’ robust performance across all three operating segments -- Healthcare,   Applied Sterilization Technologies (AST) and Life Sciences -- buoys optimism. Global expansion efforts for the company’s infection prevention and sterilization wing, too, look encouraging. The acquisitions of Cantel Medical and Key Surgical are expected to drive growth in the healthcare and pharmaceutical space. A good solvency position is an added advantage.

Image Source: Zacks Investment Research

Let’s delve deeper.

Key Drivers

Strong Segmental Business: The market is upbeat about STERIS’ strong segmental performance despite pandemic-led disruption. In the first quarter of fiscal 2022, revenues at the Healthcare arm rose 50.8% year over year on a 147% increase in consumable revenues, a 31% rise in service revenues and an 18% improvement in capital equipment revenues. Meanwhile, revenues at the AST arm improved 37.1% on a reported basis. Revenues at the Life Sciences segment rose 3.9% year over year on 8% growth in capital equipment revenues and 17% rise in service revenues. The Dental segment reported revenues of $35.2 million, which represents one month of financial performance.

Infection Prevention and Sterilization Wing Grow Globally: STERIS continues to benefit from the acquisition of U.K.-based outsourced sterilization services provider Synergy Health. The consolidation, since its inception, has boosted STERIS' presence in international markets as it combines STERIS’ strong presence in North America with Synergy's solid footprint across Europe. It has also provided STERIS an opportunity to better serve the emerging markets of Asia Pacific and Latin America.

Progress in Healthcare and Pharmaceutical Industries: We are optimistic about STERIS’ continued efforts to fortify its healthcare and pharmaceutical space foothold. In June 2021, STERIS concluded the acquisition of Cantel Medical, which was initiated in January 2021. The integration of Cantel Medical’s business is expected to strengthen and expand STERIS’ Endoscopy offerings, adding a full suite of high-level disinfection consumables, capital equipment and services as well as additional single-use accessories. In November 2020, STERIS acquired Key Surgical, which strengthens, complements and expands the company’s product offerings and global reach.

Strong Solvency: STERIS exited first-quarter fiscal 2022 with cash and cash equivalents of $534.8 million. The quarter’s total debt of $3.63 billion was much higher than the corresponding cash and cash equivalent level. However, the company’s current-year payable debt of $373 million on its balance sheet is indicative of good news in terms of its solvency level, at least during the year of the pandemic when companies are majorly facing manufacturing and supply halt. This implies that STERIS is holding sufficient cash for debt repayment in the short run.


Escalating Expenses: In first-quarter fiscal 2022, STERIS’ selling, general and administrative (SG&A) expenses rose 153.8% year over year, whereas research and development (R&D) expenses increased 12.1% year over year. Mounting operating expenses are building pressure on the company’s bottom line.

Macroeconomic Problems: The current macroeconomic environment across the globe has affected STERIS’ financial operations. Governments and insurance companies continue to look for ways to contain the rising cost of healthcare, which exerts significant pressure on STERIS and other players in the healthcare industry. Further, increased prices or decreased availability of raw materials and oil and gas might impede STERIS’ procurement of materials for manufacturing or even bump up production costs. In its earnings call for first-quarter fiscal 2022, the company noted that it anticipates additional headwinds from inflation on raw materials throughout the rest of the year.

Zacks Rank and Other Key Picks

Currently, STERIS carries a Zacks Rank #2 (Buy).

A few other better-ranked stocks from the Medical - Instruments industry include Thermo Fisher Scientific Inc. TMO, Intuitive Surgical, Inc. ISRG and Alcon Inc. ALC, each presently sporting a Zacks Rank #2. You can see the complete list of today’s  Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher has a long-term earnings growth rate of 13%.

Intuitive Surgical has a long-term earnings growth rate of 9.5%.

Alcon has a long-term earnings growth rate of 17.7%.

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