STERIS (STE) to Report Q3 Earnings: What's in the Cards?

STERIS plc STE is expected to report third-quarter fiscal 2022 results on Feb 1.

In the last-reported quarter, the company’s earnings per share (EPS) of $1.99 beat the Zacks Consensus Estimate by 8.7%. Moreover, its earnings surpassed the consensus estimate in three of the trailing four quarters and missed in one. The average earnings surprise was 6.88%.

Let's see how things have shaped up prior to the announcement.

Factors At Play

The Healthcare arm has been witnessing a major rebound, with considerable constant currency organic growth during the first half of fiscal 2022. STERIS’ Key Surgical and Cantel Medical businesses have been making significant contributions to consumable revenues within the Healthcare arm since the last two quarters and this trend is anticipated to have continued in the to-be-reported quarter as well.

In its fiscal second-quarter’s earnings call, STERIS noted that it has made noteworthy progress on the integration of Cantel Medical. The implementation of majority of staffing changes during the fiscal second quarter will allow the company to better serve customers, while well-positioning it for growth and contributing to cost synergies. This is likely to have benefitted the company’s fiscal third-quarter sales.

STERIS plc Price and EPS Surprise

STERIS plc Price and EPS Surprise

STERIS plc price-eps-surprise | STERIS plc Quote

In December 2021, STERIS entered into an asset purchase agreement to sell the company’s Renal Care business to certain subsidiaries of Evoqua Water Technologies Corp. (AQUA). The Renal Care business was primarily integrated into STERIS’ Healthcare segment and was historically operated by Mar Cor Purification and Cantel Medical (subsidiaries of STERIS). This spin-off is expected to partly reduce STERIS’ debt burden, supposedly resulting in a positive impact on the company’s financials in the fiscal third quarter.

Furthermore, the Healthcare segment is likely to have gained from a record backlog for the legacy STERIS products at the end of the fiscal second quarter.

The Zacks Consensus Estimate for Healthcare revenues is pegged at $767 million, suggesting a surge of 47% from the year-ago quarter’s reported figure.

The Applied Sterilization Technologies (“AST”) arm is anticipated to have gained from increased demand from medical device customers. Meanwhile, a rebound in procedure volumes in the United States, as noted by the company in its fiscal second quarter earnings update, is also likely to have continued in the to-be reported quarter, benefitting the AST arm. Yet, due to the COVID-19 resurgences, with the recent one being the highly contagious Omicron variant, we remain vigilant about the impact on STERIS’ procedure volumes during the fiscal third quarter.

The Zacks Consensus Estimate for AST revenues is pegged at $198 million, suggesting a rise of 12.2% from the year-ago quarter’s reported figure.

The Life Sciences segment is likely to have gained from continued growth in capital equipment and service revenues. Notably, during the fiscal second quarter, this segment rose 14% on 17% growth in capital equipment revenues and a 19% rise in service revenues. Added to this, the Life Sciences arm is likely to have benefitted from a record backlog in capital equipment business at the end of the prior quarter.

The Zacks Consensus Estimate for Life Sciences revenues is pegged at $129 million, suggesting a rise of 16.4% from the year-ago quarter.

STERIS’ newly-introduced Dental arm registered revenues of $115.6 million in the fiscal second quarter, significantly up from $35.2 million in the fiscal first quarter. The segment’s performance in the fiscal second quarter was on par with the company’s expectations, with recovery in procedures from pandemic-led challenges. We expect the Dental arm to have continued its rally in the to-be-reported quarter as well.

Q3 Estimates

The Zacks Consensus Estimate for the company’s third-quarter fiscal 2022 revenues is pegged at $1.21 billion, suggesting an improvement of 49.7% from the year-ago reported figure.

The Zacks Consensus Estimate for its third-quarter fiscal 2022 EPS of $1.95 suggests a 12.7% uptick from the year-ago reported 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 ESP has higher chances of beating estimates. However, 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 #2.

Stocks Worth a Look

Here are a few stocks worth considering, as these have the right combination of elements to beat on earnings this reporting cycle.

AMN Healthcare Services, Inc. AMN has an Earnings ESP of +10.29% and a Zacks Rank of 1. The company is slated to release fourth-quarter and full-year 2021 results on Feb 17. You can see the complete list of today’s Zacks #1 Rank stocks here.

AMN Healthcare’s long-term earnings growth rate is estimated at 16.2%. AMN’s earnings yield of 7.1% compares favorably with the industry’s 1.1%.

Hologic, Inc. HOLX has an Earnings ESP of +1.56% and a Zacks Rank of 2. The company is anticipated to release first-quarter fiscal 2022 results on Feb 2.

Hologic’s long-term earnings growth rate is estimated at 7.4%. HOLX’s earnings yield of 5.3% compares favorably with the industry’s negative 5.1%.

Abiomed, Inc. ABMD has an Earnings ESP of +0.17% and a Zacks Rank of 3. The company is slated to release third-quarter fiscal 2022 results on Feb 3.

Abiomed’s long-term earnings growth rate is estimated at 20%. ABMD’s earnings yield of 1.4% compares favorably with the industry’s (5.1%).

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