On Sep 27, we issued an updated research report on STERIS plc STE. The company has been actively trying to expand into the adjacent markets and strengthen its core business through strategic acquisitions and dilutions.
A tough competitive landscape and currency headwinds persistently pose threats to STERIS. Moreover, customer consolidation is a concern for the company. The stock carries a Zacks Rank #4 (Sell).
However, STERIS exited first-quarter fiscal 2019 on a promising note. We are also encouraged by the favorable underlying market trends along with new product and service offerings. The company's strong organic growth across Healthcare Products, Healthcare Specialty Services, Applied Sterilization Technologies and Life Sciences segments also buoys optimism.
Further, growth in free cash flow reserve is indicative of the company’s cash balance strength. It has also made certain divestments and organizational changes, expected to suit its operations better.
Shares of this developer, manufacturer and marketer of infection prevention, decontamination, microbial reduction plus surgical and gastrointestinal support products and services have outperformed its industry over the past six months. The stock has gained 21.6% against the 18.5% rise of the industry.
Of late, STERIS has been widening its footprint into adjacent markets via buyouts and non core asset dilutions. Following the Synergy Health consolidation, the company divested the Synergy Health Healthcare Consumable Solutions (HCS) business to Vernacare last November. The HCS business used to generate roughly $40 million of annual revenues.
Meanwhile, STERIS vies for pharmaceutical, research and industrial customers against several large companies with extensive product portfolios and a global reach. It also contends with small entities owning limited product offerings and operations in one or across a few countries.
A fierce rivalry looming large is bothersome for the company as new infection prevention, sterile processing, contamination control, gastrointestinal and surgical support products as well as services flood the market. This in turn, might hinder STERIS' growth considerably.
Moreover, multiple STERIS' clients are undergoing consolidation, partly due to healthcare cost-reduction measures, initiated by competitive pressures as well as legislators, regulators and third-party payors. We presume that if the company fails to check its customer consolidation rate now, it will adversely impact its business as well as the finances.
Key Picks
Some better-ranked stocks in the broader medical space are Intuitive Surgical ISRG, Amedisys, Inc. AMED and Masimo Corp. MASI.
Intuitive Surgical’s expected long-term earnings growth rate is 14.7%. The stock currently carries a Zacks Rank #2 (Buy).
Amedisys’ projected long-term earnings growth rate is 19.4%. The stock sports a Zacks Rank #1 (Strong Buy) at the moment. You can see the complete list of today’s Zacks #1 Rank stocks here.
Masimo’s estimated long-term earnings growth rate is 14.8%. The stock currently has a Zacks Rank of 2.
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