Is it the Right Time to Add STERIS Stock to 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. Sound financial health further adds to the stock’s appeal. Meanwhile, macroeconomic volatilities and operational risks from intense competition raise concerns for the company.

Currently carrying a Zacks Rank #2 (Buy), STERIS has delivered impressive momentum in the past year, with its shares rising 26.7%. This compares to the 5% growth of the industry and the S&P 500 composite’s 21.1% rise.

The renowned provider of infection prevention, and other procedural products and services has a market capitalization of $25.44 billion. The company has an earnings yield of 3.9%, well above the industry’s 0.5% 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: STERIS’ 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. In the second quarter of fiscal 2026, Healthcare reported revenue growth of 9% year over year, backed by 10% growth in consumable revenues and 4% growth in capital equipment revenues. Service revenues continued their streak of outperformance with a 13% year-over-year increase. Order growth was robust, with more than 3% growth year to date. Margins improved, primarily driven by increasing volume, favorable pricing, positive productivity and restructuring program benefits offsetting tariffs and inflation.

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, particularly, is gaining success with ethylene oxide (EO) sterilization. The customers in this business are mostly the manufacturers of single-use, sterile technologies that are used in aseptic manufacturing of vaccines and biopharmaceuticals. In the second quarter of fiscal 2026, the AST division experienced 10% growth year over year, driven by a 13% increase in service revenues. Constant currency organic revenues were in the high single digits. The growth can be attributed to currency, bioprocessing demand, and stable medical device volumes.

Favorable Solvency: STERIS looks quite comfortable from the liquidity point of view. In the second quarter of fiscal 2026, the company had a long-term debt of $1.90 billion, down 0.3% sequentially. The company exited the fiscal second quarter with cash and cash equivalents of $319 million, with no short-term debt reported. The total debt-to-capital ratio was 21.3% at the end of the quarter. 

What Concerns STERIS?

Macroeconomic Problems: The current macroeconomic environment across the globe has adversely affected STERIS’ financial operations. Governments and insurance companies continue to look for ways to contain the rising cost of healthcare. This is significantly putting pressure on players in the healthcare industry, with STERIS being no exception. Increases in prices or decreases in the availability of raw materials, oil and gas have also historically impaired STERIS’ procurement of necessary materials for product manufacture, leading to an increase in production costs. Additionally, elevated costs because of the implementation of tariffs are also a concern.

Competitive Landscape: STERIS faces competition across pharmaceutical, research and industrial markets, from several large companies that have robust product portfolios and global reach, alongside small companies with limited product offerings. The company expects to face continued competition in the future in new infection prevention and sterile processing. Management also notes that some of the existing or potential competitors might have greater resources, enabling faster product development and competition.

STE Stock Estimate Trend

The Zacks Consensus Estimate for STERIS’ fiscal 2026 earnings per share (EPS) indicates a 10.9% increase to $10.23.   

The consensus mark for fiscal 2026 revenues is pegged at $5.93 billion, which suggests 8.6% growth from the fiscal 2025 reported number.

Other Key Picks

Some other top-ranked stocks in the broader medical space are Phibro Animal Health PAHC, Boston Scientific BSX and Quest Diagnostics DGX.

Phibro Animal Health has an earnings yield of 7.2% compared with the industry’s 2.5% yield. Shares of the company have surged 98.1% in the past year against the industry’s 2.2% fall. PAHC’s earnings outpaced estimates in three of the trailing four quarters and missed on one occasion, the average surprise being 20.8%.

PAHC carries a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Boston Scientific, carrying a Zacks Rank #2,has an estimated long-term earnings growth rate of 16.4% compared with the industry’s 13.9% growth. Its earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 7.4%. BSX shares have rallied 3.6% against the industry’s 2.2% fall in the past year.

Quest Diagnostics, carrying a Zacks Rank #2, has an earnings yield of 6% compared with the industry’s 5.6% yield. Shares of the company have jumped 17.1% compared with the industry’s 8.5% growth. DGX’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 2.5%. 

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

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