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Steris (STE) Up 4.5% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Steris (STE - Free Report) . Shares have added about 4.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Steris 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 catalysts.

STERIS' Q2 Earnings Surpass Estimates

STERIS plc reported second-quarter fiscal 2020 adjusted earnings per share of $1.32, up 20% year over year. The metric beat the Zacks Consensus Estimate by 4.8%.

The company’s reported earnings came in at $1.11, up 21.9% year over year.

Revenues of $736.8 million increased 8.5% year over year in the quarter, beating the Zacks Consensus Estimate by 2.9%.

Quarter in Detail

Organic revenue growth at constant currency was 10% year over year in the fiscal second quarter, mainly driven by growth across all segments.
The company operates through four segments: Healthcare Products, Healthcare Specialty Services, Applied Sterilization Technologies and Life Sciences.

Revenues at Healthcare Products increased 9% year over year to $350.3 million (up 9% on a constant currency organic basis). In the quarter under review, service revenues grew 10% and capital equipment revenues jumped 10%. Meanwhile, consumable revenues grew 7%.
 
Revenues in the Healthcare Specialty Services segment were up 8% to $135 million (up 11% on a constant currency organic basis).

Revenues at Applied Sterilization Technologies climbed 13% to $152.9 million (up 14% at CER organic basis), backed by increased demand from core medical device customers.

Revenues in the Life Sciences segment increased 2% to $98.7 million (up 2% at CER organic basis) on 11% growth in consumable revenues, along with a 3% rise in service revenues. This was partially offset by an 11% decline in capital equipment revenues.

Margins

Adjusted gross margin (after excluding cost of revenues for restructuring) expanded 132 basis points (bps) year over year to 43.2% in the reported quarter.

STERIS witnessed 8.4% year-over-year rise in selling, general and administrative expenses to $175.9 million. Research and development expenses flared up 3% to $16.2 million. Overall, adjusted gross margin expanded 146 bps, year over year, to 17.2% in the quarter.

Financial Details

STERIS exited the fiscal second quarter with cash and cash equivalents of $225.5 million compared with the $238.1 million witnessed at the end of first-quarter fiscal 2020. Year to date, net cash provided by operations was $260 million compared with $226.7 million at the end of the year-ago period.

Guidance

The company has raised its projection for fiscal 2020 adjusted earnings in the range of $5.50-5.65 from the earlier estimate of $5.38-5.53. The Zacks Consensus Estimate for fiscal 2020 adjusted earnings lies at $5.46, below the guided range.

Constant currency organic revenue growth is now expected to be in the range of 7.5-8.5% compared with the prior projection of 6-7%. The Zacks Consensus Estimate for fiscal 2020 revenues is pegged at $2.95 billion.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Steris has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Steris has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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