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Why Is STERIS (STE) Up 7.7% Since Its Last Earnings Report?

A month has gone by since the last earnings report for STERIS plcSTE . Shares have added about 7.7% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is STE due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Recent Earnings

STERIS reported third-quarter fiscal 2018 adjusted earnings per share (EPS) of $1.12, excluding net tax benefit of $25.7 million or 30 cents as a result of the U.S. tax reform. Reported EPS came in at $1.11.

The adjusted EPS figure was up 14.3% year over year and was 4.7% above the Zacks Consensus Estimate of $1.07.

Revenues in Detail

STERIS generated revenues of $661.9 million, up 2.3% year over year. Meanwhile, the top line missed the Zacks Consensus Estimate of $665.5 million. Organic revenue growth at constant currency was 5% year over year, mainly driven by high single-digit or low double-digit growth across majority of the segments.

The company operates through four segments: Healthcare Products, Healthcare Specialty Services, Applied Sterilization Technologies and Life Sciences.

Revenues at Healthcare Products remained relatively flat year over year at $324.9 million. This was largely due to a 9% decline in capital equipment revenues, offsetting a 9% rise in consumable revenues and a 6% increase in service revenues.

Revenues at the Healthcare Specialty Services segment fell 9.1% to $117.4 million on a reported basis due to linen divestitures. However, organic revenues grew 9%, reflecting growth at IMS North America.

Revenues at Applied Sterilization Technologies rose 12.5% to $128.7 million, while organic revenues grew 9% on increased demand from core medical device customers.

Revenues at the Life Sciences segment grew 15.6% to $90.9 million on 8% growth in Service revenues, 12% increase in consumable revenues and 33% rise in capital equipment revenues. On an organic basis, revenues increased 14% year over year.

Margins

Adjusted gross margin improved 230 basis points (bps) year over year to 42.1% in the reported quarter on account of synergies from divested low-margin businesses and a favorable product mix and pricing.

STERIS witnessed a 0.2% year-over-year rise in selling, general and administrative expenses to $159.1 million. Research and development expenses rose 4.1% to $15.2 million. Accordingly, adjusted operating margin expanded 280 bps on a year-over-year basis to 15.8% in the reported quarter.

Financial Details

STERIS exited third-quarter fiscal 2018 with cash and cash equivalents of $283.8 million, compared with $295.6 million at the end of second-quarter fiscal 2018. The company had long-term debt of $1.42 billion at the end of third-quarter fiscal 2018 compared with $1.45 billion at the end of second-quarter fiscal 2018.

Year to date, the company generated $327.9 million in cash flow from operations, up 13.3% from the year-ago period. Free cash flow in this period was $216.4 million compared with $181.9 million in the prior-year period.

2018 Guidance

STERIS continues to expect 4-5% of organic revenue growth in fiscal 2018 on a constant currency basis from the prior fiscal. The Zacks Consensus Estimate for fiscal 2018 revenues is pegged at $2.60 billion.

The company has raised it adjusted EPS outlook for fiscal 2018. The adjusted EPS is now projected in the range of $4.10-$4.16 in comparison to the previously provided range of $3.96-$4.09. The Zacks Consensus Estimate for fiscal 2018 adjusted EPS is pegged at $4.06, below the guided range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter.

STERIS plc Price and Consensus

STERIS plc Price and Consensus | STERIS plc Quote

VGM Scores

At this time, STE has a nice Growth Score of B. Its Momentum is doing a bit better with an A. The stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is primarily suitable for momentum investors while also being suitable for those looking for growth and to a lesser degree value.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. Notably, STE has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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