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

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Shares of STERIS plc STE reached a new 52-week high of $248.30 on Jan 4, before closing the session marginally lower at $245.16.

Over the past year, this Zacks Rank #2 (Buy) stock has gained 25.6% compared with 6.1% growth of the industry and 28.7% rise of the S&P 500 composite.

STERIS is witnessing an upward trend in its stock price, prompted by its solid segmental performances. The company’s robust overall performance in the second quarter of fiscal 2022, along with its strength in healthcare and pharmaceutical industries, buoys optimism. Customer consolidation and pricing pressure are the major downsides.

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Let's delve deeper.

Key Growth Drivers

Strong Segmental Performance: Investors are upbeat about STERIS’ strong segmental performance in the second quarter of fiscal 2022. Revenues at Healthcare improved year over year as well as on a constant exchange rate (“CER”) organic basis on the back of a surge in consumable revenues, an increase in service revenues and improvement in capital equipment revenues. Revenues at Applied Sterilization Technologies (“AST”) improved both on a reported and at CER organic basis. CER organic revenue growth was driven by increased demand from medical device customers during the quarter.

Revenues at the Life Sciences segment rose year over year and at CER organic basis owing to growth in capital equipment as well as service revenues. The Dental segment also reported revenue growth for the quarter.

Progress in Healthcare and Pharmaceutical Industries: The bulk of STERIS’ revenues are obtained from the healthcare and pharmaceutical industries. Growth in these industries is primarily driven by the aging of the global population, as an increasing number of individuals are entering their prime healthcare consumption years, raising investors’ optimism. In June 2021, STERIS acquired Cantel Medical. The integration 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.

Strong Q2 Results: STERIS’ better-than-expected results in second-quarter fiscal 2022 buoy optimism. The company recorded year-over-year growth in revenues and earnings, which looks encouraging. Solid revenue growth across three of its reporting segments amid the post-pandemic recovery contributed to the top line. Elevated demand from medical device customers drove CER organic revenue growth in the AST segment. The seamless integration process of Cantel Medical buoys optimism for the stock. Further, the bullish fiscal 2022 guidance is indicative that this growth momentum will continue.

Downsides

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 reduced their production costs, and subsequently their product prices, to attract more customers. This, in turn, has caused greater pricing pressure and in some cases has resulted in customer loss for the company. Additional consolidation will result in the loss of a greater number of customers or create significant pricing pressure for STERIS. 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.

Pricing Pressure: The availability and price of raw materials, fabricated and other components, and energy supplies, which STERIS obtains from various suppliers, are subject to volatility. These are influenced by worldwide economic conditions, speculative action, world supply and demand balances, inventory levels, availability of substitute materials, currency exchange rates, anticipated or perceived shortages, and various other factors.

Other Key Picks

A few other stocks in the broader medical space that investors can consider are Laboratory Corporation of America Holdings LH or LabCorp, Thermo Fisher Scientific Inc. TMO and AMN Healthcare Services AMN. All three stocks currently carry a Zacks Rank #2.

LabCorp has an estimated long-term growth rate of 10.6%. LH’s earnings surpassed estimates in the trailing four quarters, the average surprise being 25.73%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

LabCorp has gained 33.6% compared with the industry’s 10.7% rise over the past year.

Thermo Fisher has an estimated long-term growth rate of 14%. TMO’s earnings surpassed estimates in the trailing four quarters, the average surprise being 9.02%.

Thermo Fisher has gained 27.4% compared with the industry’s 6.1% rise over the past year.

AMN Healthcare has an estimated long-term growth rate of 16.2%. AMN’s earnings surpassed estimates in the trailing four quarters, the average surprise being 19.51%.

AMN Healthcare has gained 68.6% against the industry’s 51.3% fall over the past year.


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Laboratory Corporation of America Holdings (LH) : Free Stock Analysis Report

Thermo Fisher Scientific Inc. (TMO) : Free Stock Analysis Report

AMN Healthcare Services Inc (AMN) : Free Stock Analysis Report

STERIS plc (STE) : Free Stock Analysis Report

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