STERIS Hit by Currency Fluctuations, Customer Consolidation

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On Aug 17, we issued an updated research report on OH-based STERIS plc STE – a manufacturer and marketer of infection prevention, decontamination, microbial reduction, along with surgical and gastrointestinal support products and services. The company currently carries a Zacks Rank #4 (Sell).

STERIS started fiscal 2017 on a mixed note. While first-quarter earnings exceeded the Zacks Consensus Estimate, revenues failed to meet the same. Additionally, the company’s lowered revenue guidance for fiscal 2017 was disappointing.

Currency continues to be a major obstacle to STERIS’ growth for quite some time. During the fiscal first quarter, currency fluctuations affected STERIS’ revenues by 40 basis points.

Moreover, the current macroeconomic turmoil in countries of the Middle East, owing to fluctuating oil prices, affected STERIS’ top line in the first quarter. Similar macroeconomic challenges were also witnessed across Latin America, Venezuela and Brazil.

With governments and insurance companies consistently trying to contain the rising cost of healthcare, pricing pressure has become a major headwind for healthcare providers like STERIS. Adding to woes is rapid customer consolidation, weak cost reduction initiatives on the company’s part as well as a competitive landscape, which looms large.

On the bright side, Synergy Health – the company STERIS acquired last year, was one of the primary contributors to the strong double-digit revenue growth observed by the combined company. Going ahead, management expects Synergy to contribute between $640–$650 million or a low-single-digit growth in fiscal 2017.

STERIS has always been in sync with its strategy of acquisitions for growth. In Jul 2016, the company bought Medisafe Holdings, which is an U.K.-based manufacturer of washer disinfector equipment and also markets related consumables and services. Per management, Medisafe’s products and services complement STERIS’ global healthcare offering by providing washer R&D and production in the U.K.

Stocks to Consider      

Some better-ranked stocks in the medical instrument space are IDEXX Laboratories, Inc. IDXX, Masimo Corporation MASI and Natus Medical Inc. BABY. All these stocks sport a Zacks Rank #1 (Strong Buy).

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