What’s Driving The Growth For STERIS Stock?


STERIS stock (NYSE: STE), a healthcare company focused on infection prevention, has seen a 29% fall this year, slightly underperforming the broader S&P500 index, down 21%. However, in the longer term, STE stock, with 62% returns from levels seen in late 2018, has slightly outperformed the S&P 500 index, up over 50%. STE stock looks undervalued at around $173, as discussed below.

This 62% rise for STE stock since late 2018 can primarily be attributed to 1. STERIS’ revenue rising a significant 82% to $4.8 billion over the last twelve months, compared to $2.6 billion in fiscal 2018 (fiscal ends in March), 2. a 2% rise in the company’s P/S ratio to 3.5x trailing revenues currently, partly offset by 3. a 15% rise in its total shares outstanding to 98 million. The increase in revenue and a rise in shares outstanding has meant that STERIS’ revenue per share rose 59% to $48.94 over the last twelve months, vs. $30.79 in 2018.

STERIS’ revenue growth can primarily be attributed to its acquisition of Cantel Medical last year. Cantel also makes infection prevention products and services, mainly for endoscopy and dental uses, with total revenue of around $1 billion in fiscal 2020. STERIS now reports its revenue in four segments – Healthcare, Applied Sterilization Technologies (AST), Life Sciences, and Dental. The Cantel acquisition gave the company access to the dental market. All other segments have seen double-digit growth in fiscal 2022.

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Although STERIS has seen significant revenue growth over recent years, it has seen a decline in operating margins from 17.2% in fiscal 2018 to 13.7% over the last twelve months. Our STERIS Operating Income dashboard has more details.

STERIS’ AST unit has been a slight cause of concern for investors, given the ethylene oxide (EtO) emissions. EtO gas is the most common sterilization method for moisture or heat-sensitive items. Recently, an Illinois jury found STERIS’ competitor – Sterigenics – liable for a woman’s breast cancer and her son’s non-Hodgkin’s lymphoma due to its sterilization facility’s emissions of EtO. [1] One of the Wall Street research firms lowered its rating for STE stock following this development, citing more lawsuits against such companies, including STERIS, could come up in the future.

STERIS is expected to see around 9% top-line growth this year to about $5.0 billion (per the consensus estimate). Assuming the current share count of 100 million (reported for fiscal Q1 2023), we arrive at the expected revenue per share of $49.70 for the full fiscal 2023. Now, at its current levels, STE stock is trading at 3.4x forward expected revenues, compared to the last three-year average of 4.9x, implying that STE stock is attractive from a valuation perspective.

While STE stock looks undervalued, it is helpful to see how STERIS’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Corcept Therapeutics vs. Amerco.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Oct 2022
MTD [1]
YTD [1]
Total [2]
 STE Return 4% -29% 157%
 S&P 500 Return 6% -21% 69%
 Trefis Multi-Strategy Portfolio 7% -21% 212%

[1] Month-to-date and year-to-date as of 10/6/2022
[2] Cumulative total returns since the end of 2016

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  1. Jury finds Sterigenics liable for Willowbrook woman’s breast cancer, awards $363 million in damages, CBS Chicago, Sep 19, 2022 []