STERIS (STE) to Report Q3 Earnings: What's in the Cards?
STERIS plc STE is expected to report third-quarter fiscal 2023 results shortly.
In the last reported quarter, the company’s earnings per share of $1.99 missed the Zacks Consensus Estimate by 0.5%. Its earnings surpassed the consensus estimate in two of the trailing four quarters, came in line in one and missed in one. The average four-quarter earnings surprise was 2.56%.
Let's see how things have shaped up prior to the announcement.
Factors at Play
Within the Healthcare arm of STERIS, Key Surgical and Cantel Medical businesses have been making significant contributions to consumable revenues over the last few quarters. On the second-quarter fiscal 2023 earnings call, the company noted significant levels of capital shipments in the second half of fiscal 2023 based on its backlog. This might have resulted in strong capital equipment and service growth in the fiscal third quarter. Added to this, in fiscal Q2, despite the uptick in shipments, approximately $60 million in capital equipment shipments were delayed. This has further strengthened STERIS’ confidence for a solid Q3 fiscal 2023 performance.
STERIS’ Cantel business strengthens and expands its Endoscopy offerings, adding a full suite of high-level disinfection consumables, capital equipment and services as well as additional single-use accessories. This is likely to have benefited the company’s fiscal third-quarter sales.
STERIS plc Price and EPS Surprise
STERIS plc price-eps-surprise | STERIS plc Quote
Meanwhile, STERIS’ hospital capital spending remains robust, as evident from the healthcare backlog. In the last reported quarter, the healthcare backlog totaled over $500 million and orders for the quarter were 40% large project related. The Healthcare backlog trend is likely to have continued for the legacy STERIS products at the end of the fiscal third quarter.
The Zacks Consensus Estimate for Healthcare revenues is pegged at $795 million, suggesting a 4.6% rise from the year-ago quarter’s reported figure.
The Applied Sterilization Technologies (AST) arm is anticipated to have gained from increased demand from core medical device customers. However, the company apprehends about a lumpy shipment going forward. Added to this, increased energy costs, both in the United States and internationally, have been impacting AST margins. The company earlier expected this scenario to continue at least through winter. This might have marred AST revenue growth in fiscal Q3.
The Zacks Consensus Estimate for AST revenues is pegged at $240 million, suggesting a rise of 11.1% from the year-ago quarter’s figure.
The Life Sciences segment is likely to have gained from continued growth in capital equipment and service revenues. Over the recent months, procedures have started recovering. Fiscal 2023 so far has recorded a backlog from a Capital Equipment perspective. This is likely to have benefited the company’s top line in the fiscal third quarter.
The Zacks Consensus Estimate for Life Sciences revenues is pegged at $124 million, suggesting a 3.1% drop from the year-ago quarter.
STERIS’ Dental arm revenues declined 3% in the last reported quarter, impacted somewhat by the current macroeconomic conditions, including supply chain challenges. Going by the industry-wide trend, these challenges are likely to have continued in the fiscal third quarter too.
The Zacks Consensus Estimate for Dental revenues is pegged at $104 million, a0.9% drop from the year-ago quarter.
Overall, for the third quarter of fiscal 2023, we expect the company’s business to have been hampered by extraordinary supply chain and labor inflation costs. In addition to the anticipated headwinds from supply chain and inflation, STERIS’ fiscal 2023 operating expenses are expected to have been higher with rising spending on travel, sales, and marketing, and other expenses. R&D spending is also anticipated to have been higher as the company continues to develop and bring new products to its customers. All these are likely to have impacted the to-be-reported quarter’s earnings performance.
The Zacks Consensus Estimate for the company’s third-quarter fiscal 2023 revenues is pegged at $1.27 billion, suggesting an improvement of 5.2% from the year-ago figure.
The Zacks Consensus Estimate for third-quarter fiscal 2023 EPS of $2.22 suggests a 4.7% uptick from the year-ago figure.
What Our Model Suggests
Per our proven model, a stock with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) along with a positive Earnings ESPhas higher chances of beating estimates. This is not the case here, as you can see:
Earnings ESP: The company has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: The company currently carries a Zacks Rank #3.
Stocks to Consider
Here are some medical stocks worth considering as these have the right combination of elements to post an earnings beat this quarter.
Cardinal Health CAH has an Earnings ESP of +5.75% and a Zacks Rank of #2. The company will release fourth-quarter 2022 results on Feb 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Cardinal Health has a long-term expected earnings growth rate of 11.7%. Cardinal Health’s earnings yield of 6.87% compares favorably with the industry’s 4.34%.
Hologic HOLX has an Earnings ESP of +6.37% and a Zacks Rank of #2. Hologic is scheduled to release first-quarter fiscal 2023 results on Feb 1.
Hologic’s long-term historical earnings growth rate is estimated at 23.4%. Hologic’s earnings yield of 4.35% compares favorably with the industry’s -6.74%.
Laboratory Corporation of America Holdings or LabCorp LH currently has an Earnings ESP of +2.67% and a Zacks Rank of #2. LabCorp is scheduled to release fourth-quarter 2022 results on Feb 16.
LabCorp’s long-term historical earnings growth rate is estimated at 26.1%. LabCorp’s earnings yield of 7.02% compares favorably with the industry’s 4.34%.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Laboratory Corporation of America Holdings (LH) : Free Stock Analysis Report
Cardinal Health, Inc. (CAH) : Free Stock Analysis Report
Hologic, Inc. (HOLX) : Free Stock Analysis Report
STERIS plc (STE) : Free Stock Analysis Report
To read this article on Zacks.com click here.