Recently, tax inversions have become a hot issue, as the President is attempting to stop U.S. based companies from leaving the U.S for more tax friendly countries. Currently, Congress members are squabbling about how to fix this situation. But recently, a U.S. based company did an inversion, and has produced improving margins, and increased revenues in their most recent quarter. This move is expected to decrease the company’s tax rate from 35% to 25%. Due to this, Steris Plc (STE), is the Zacks Bull of the Day.
This Zacks Rank #1 (Strong Buy) provides infection prevention, contamination control, microbial reduction, and procedural support products and services for healthcare, pharmaceutical, scientific, research, industrial and governmental customers. The Company's operating segments consists of Healthcare, Life Sciences and STERIS Isomedix Services.
In their most recent quarter, revenues improved 6% year over year with growth in all three segments of the company. Specifically, the Healthcare segment saw YoY improvements in revenues +3%, service revenues +4%, consumable revenues +2%, and capital equipment revenues +3%. The Life Sciences segment saw YoY improvements in revenues +20%, consumable revenues +32%, capital equipment revenues +25%, and service revenues +3%. Lastly, the Isomedix Services segment saw a YoY increase in revenues +8%.
The company recently completed two major acquisitions; General Econopak for $175 million, and Synergy Health for $1.9 billion. General Econopak is a manufacturer of product solutions for sterility maintenance, sterile cleanroom products, and barrier protection. The General Econopak segment has fit in seamlessly into Steris’s Life Sciences division, and is responsible for increased volume in all three segments.
Synergy Health is a provider of outsourced services to health related industries. Their largest service is the provision of outsourced sterilization for medical device manufacturers and healthcare providers. As part of the acquisition of Synergy Health, Steris moved to the U.K. for tax purposes. This will decrease their corporate tax rate from 35% to 25%.
According to Walt Rosebrough, President and CEO, “STERIS is in a good position heading into our second half, with solid top and bottom-line growth. We are very pleased to be days away from closing the Synergy Health acquisition. We are excited about the future, as the combined Company will bring together the many strengths of both businesses, which will allow us to accomplish more than either one of us could separately.”
Increasing Estimates
As you can see in the graph below, estimates for Steris have been steadily increasing for the past few years.
Over the past 30 days estimates for Q3 16, Q4 16, FY 16 and FY 17 have all increased; Q3 16 rose from $0.83 to $0.92, Q4 16 improved from $0.97 to $1.04, FY 16 jumped from $3.23 to $3.52, and FY 17 rose from $3.71 to $3.97.
Bottom Line
In one move, Steris decreased their tax rate by 10%, and has been able to increase overall revenues in every segment before they have complete synergy with both of their new acquisitions. Management is expecting high single digit revenue growth for the remainder of 2016, and increased overall volume in all three segments.
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STERIS PLC (STE): Free Stock Analysis Report
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