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STERIS (STE) Set to Post Q4 Earnings: What's in the Cards?

STERIS plc STE is set to release fourth-quarter fiscal 2023 results on May 11 before the opening bell.

The company posted adjusted earnings per share (EPS) of $2.02 in the last reported quarter, which missed the Zacks Consensus Estimate by 9.01%. STERIS beat earnings estimates in two of the trailing four quarters and missed the same in the other two, the average negative surprise being 1.88%.

Let’s look at how things have shaped up before this announcement.

Factors at Play

The Healthcare arm of STERIS generated strong organic revenues in the fiscal third quarter, driven by significant growth in capital equipment shipments for several key healthcare products. In the fiscal third quarter, STERIS reported an improvement in capital shipments, leading to a reduction in the shipment backlog to approximately $30 million. This situation is likely to have improved in the fiscal fourth quarter.

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Meanwhile, the company noted witnessing supply-chain constraints, particularly for its electronic components. This is likely to have unfavorably impacted STERIS’ top line in the fiscal fourth quarter.

STERIS plc Price and EPS Surprise

STERIS plc Price and EPS Surprise
STERIS plc Price and EPS Surprise

STERIS plc price-eps-surprise | STERIS plc Quote

Meanwhile, STE’s capital expenditure toward hospitals remains stable, as evidenced by the healthcare backlog. In the fiscal third-quarter earnings update, STERIS reported a backlog of more than $500 million, with 40% comprising large projects. Amid gradual supply-chain improvements, we believe the Healthcare backlog trend is likely to have continued for the company’s products at the end of the fiscal fourth quarter.

STERIS’ integration of Cantel Medical 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. The company is most likely to have completed its targeted cost synergy of $50 million in the fiscal fourth quarter.

The Zacks Consensus Estimate for Healthcare revenues is pegged at $785 million. This suggests a 2.1% rise from the year-ago quarter’s reported figure.

The Applied Sterilization Technologies (“AST”) segment of STERIS is likely to have positively contributed to fiscal fourth-quarter revenues due to the increased demand from core medical device customers.

Further, within STE’s capital equipment business, Mevex, a large E-Beam capital equipment order of nearly $10 million was delayed in the to-be-reported quarter. The shipment timing constraint is likely to have resolved in the fiscal fourth quarter, thus adding to the quarter’s revenues.

The Zacks Consensus Estimate for AST revenues is pegged at $241 million. This suggests a rise of 8.5% from the year-ago quarter’s figure.

Similar to the AST segment, STERIS’ Life Sciences segment witnessed a drop in the consumables volume due to the reduction in bioprocessing customers in the fiscal third quarter. However, the rising demand for STERIS’ cell and gene therapies is likely to have partially offset the reduction in vaccine production in the fiscal fourth quarter. From the capital equipment perspective, backlogs of more than $100 million are expected to have benefited the company’s top line in the fiscal fourth quarter.

The Zacks Consensus Estimate for Life Sciences revenues is pegged at $141 million. This implies a 16.5% increase from the year-ago quarter.

In the fiscal third quarter, STERIS reported a 2% year-over-year decline in its Dental segment revenues. However, despite restrained consumer spending, STERIS performed better than the market, with benefits coming from pricing and modest share gains. We believe this trend is likely to have sustained in the fiscal fourth quarter.

The Zacks Consensus Estimate for Dental revenues is pegged at $107 million, a 2.9% rise from the year-ago quarter.

Overall, for the fiscal fourth quarter, we expect the company’s business to have been adversely affected by foreign currency headwinds. STERIS highlighted the inflation impact on its revised fiscal 2023 revenue guidance in the last reported earnings update, followed by a reduced outlook of fiscal 2023 diluted EPS.

Q1 Estimates

The Zacks Consensus Estimate for STERIS’ first-quarter 2023 revenues is pegged at $1.27 billion. This suggests an increase of 5.2% from the year-ago reported figure.

The consensus estimate for its first-quarter 2023 EPS of $2.15 indicates a year-over-year decline of 5.4%

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 a higher chance of beating estimates, which is not the case here.

Earnings ESP: STERIS has an Earnings ESP of -0.23%. 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 #4 (Sell).

Stocks Worth a Look

Here are some medical stocks worth considering, as these have the right combination of elements to post an earnings beat this quarter.

Align Technology ALGN has an Earnings ESP of +3.08% and a Zacks Rank #3. The company will release first-quarter 2023 results on Apr 26. You can see the complete list of today’s Zacks #1 Rank stocks here.

Align Technology has an expected long-term earnings growth rate of 16%. ALGN has an earnings yield of 2.25% compared with the industry’s 4.55%.

Henry Schein HSIC has an Earnings ESP of +0.99% and a Zacks Rank #2. Henry Schein is expected to release first-quarter 2023 results on May 2.

HSIC has an expected long-term earnings growth rate of 8.10%. The company’s earnings yield of 6.28% compares favorably with the industry’s 4.55%.

Insulet PODD currently has an Earnings ESP of +70.2% and a Zacks Rank #2. Insulet is scheduled to release first-quarter 2023 results on May 4.

Insulet has an expected earnings growth rate of 57.8% for the next year. PODD has an earnings yield of 0.40% compared with the industry’s -3.11%.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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STERIS plc (STE) : Free Stock Analysis Report

Align Technology, Inc. (ALGN) : Free Stock Analysis Report

Henry Schein, Inc. (HSIC) : Free Stock Analysis Report

Insulet Corporation (PODD) : Free Stock Analysis Report

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