On Apr 14, 2015, we issued an updated research report on STERIS Corp. STE, a developer and manufacturer of infection prevention, decontamination, microbial reduction, and surgical and gastrointestinal support products and services. STERIS exited the third quarter of fiscal 2015 on a promising note delivering impressive financial results. Both earnings and revenues beat the Zacks Consensus Estimate.
On a year-over-year basis also, the company reported improved results for both its top and bottom line. In fact, all the segments of STERIS delivered positive growth on a year-over-year comparison.
Presently, we are encouraged by the company’s impending $1.9 billion acquisition of Synergy Health plc. The buyout should boost STERIS' presence in the international market as it will combine the company’s strong presence in North America with Synergy's solid foothold across Europe. The transaction is expected to be significantly accretive to the combined business’ adjusted earnings per diluted share in fiscal 2016 and beyond.
Both the healthcare and pharmaceutical industries, wherefrom STERIS derives the bulk of its revenues, are currently experiencing specific trends that are likely to ramp up demand for products developed by the company. Given the continued success achieved by STERIS in offering varied medical equipment to its customers, we believe it holds huge potential to expand its foothold in these spaces.
However, we are concerned about the current customer consolidation scenario which will adversely impact STERIS if not checked immediately. Additional consolidation will result in loss of more number of customers or create significant pricing pressure for STERIS. The company’s competitive landscape and weak cost reduction initiatives also remain as overhangs.
Over the past 60 days, the Zacks Consensus Estimate for fiscal 2015 and fiscal 2016 has remained unchanged at $2.90 and $3.23 per share, respectively.
The stock currently carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Med/Dental-supply stocks such as AmerisourceBergen Corporation ABC, Laboratory Corp. of America Holdings LH and Merit Medical Systems, Inc. MMSI are worth a look. All the three stocks sport a Zacks Rank #1 (Strong Buy).
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