Is This the Right Time to Hold STERIS Stock in Your Portfolio?

STERIS plc STE is well poised to gain in the upcoming quarters, thanks to its Healthcare segment, which continues to see strong market adoption of its comprehensive offerings, including infection prevention consumables and capital equipment.

The Applied Sterilization Technologies (“AST”) segment is gaining from robust service revenues, which is encouraging. Macroeconomic volatilities and unfavorable foreign exchange raise concerns for the company.

Over the past year, this Zacks Rank #3 (Hold) company’s shares have lost 1.7% compared with the industry’s 1.2% decline. The S&P 500 composite has risen 24% over the period.

The renowned provider of infection prevention and other procedural products and services has a market capitalization of $21.57 billion. The company has an earnings yield of 5%, well above the industry’s negative 1.9% yield. In the trailing four quarters, STE delivered an average earnings surprise of 2.6%.

Let’s delve deeper.

Positive Factors for STERIS

Promising Healthcare Business: The Healthcare segment is gaining from the successful market adoption of its comprehensive offerings, including infection prevention consumables and capital equipment. Over the past few quarters, the segment’s organic growth has been driven by the continuous procedure volume growth in the United States and favorable pricing and market share gains.

For the fiscal third quarter, Healthcare reported revenue growth of 9% year over year (up 8% on a CER organic basis). This outperformance indicated 8% growth in consumable revenues and a 7% rise in capital equipment revenues. Service revenues continued their streak of outperformance, rising 11% year over year.

Strong Rebound Prospects in the AST Segment: This technology-neutral contract sterilization service successfully offers a wide range of sterilization modalities through a worldwide network of over 50 contract sterilization and laboratory facilities. STERIS is gaining success with ethylene oxide (EO) sterilization.

In the fiscal third quarter, the AST division experienced 11% growth year over year. This was driven by 103% growth in capital equipment revenues and a 9% increase in service revenues. Constant currency organic revenues were in the high single digits. The growth can be attributed to favorable currency, bioprocessing demand and stable medical device volumes.

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What Are the Key Concerns for STERIS?

Foreign Currency Risks: Nearly 26% of the company’s revenues and cost of revenues are generated outside the United States. Foreign currency exchange rate fluctuations can significantly affect its financial position, results of operations and competitive position. For most operations, local currencies have been determined to be the functional currencies.

Macroeconomic Problems: The current macroeconomic environment across the globe has adversely impacted STERIS’ financial operations. Such macroeconomic factors are also resulting in a significant escalation in the company’s operating expenses. STERIS witnessed a 5% year-over-year rise in selling, general and administrative (SG&A) expenses in the fiscal third quarter. Research and development (R&D) expenses rose 7.7%, reflecting the company’s ongoing investments in innovation. If the increased expenses do not lead to the development of competitive products or services, there could be a risk of declining demand for STERIS’ offerings, which may hurt profitability.

STERIS is also facing rising costs because of the implementation of tariffs by the new U.S. government. Healthcare and Life Sciences margins declined due to increased tariffs and inflation.

STE Stock Estimate Trend

The Zacks Consensus Estimate for fiscal 2026 earnings per share (EPS) indicates a 0.1% increase to $10.22.

The consensus mark for fiscal 2026 revenues is pegged at $5.94 billion, which suggests 8.8% growth from the fiscal 2025 reported number.

Key Picks

Some better-ranked stocks in the broader medical space are Globus Medical GMED, Phibro Animal Health PAHC and IDEXX Laboratories IDXX.

Globus Medical has an earnings yield of 5.1% compared to the industry’s negative 1.8% yield. Its earnings surpassed estimates in three of the trailing four quarters and missed on one occasion, the average surprise being 18.8%. The company’s shares have rallied 29.1%, outpacing the industry’s 8.4% growth over the past year.

GMED sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Phibro Animal Health, carrying a Zacks Rank #2 (Buy) at present, has an earnings yield of 5.5% compared with the industry’s 2.4% yield. Shares of the company have soared 207.2% against the industry’s 13.8% decline. PAHC’s earnings beat estimates in each of the trailing four quarters, the average surprise being 20.2%.

IDEXX Laboratories, currently carrying a Zacks Rank #2, has an earnings yield of 2.6% compared to the industry’s negative 1.8% yield. Shares of the company have surged 60.1% compared with the industry’s 8.4% growth. IDXX’s earnings topped estimates in each of the trailing four quarters, the average surprise being 6.1%.

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This article originally published on Zacks Investment Research (zacks.com).

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