On Thursday, Piper Sandler, a financial services firm, upgraded STERIS stock Neutral to Overweight, simultaneously raising the price target from $230.00 to $260.00. The adjustment reflects a more optimistic stance on the company's prospects, despite broader concerns in the healthcare equipment sector and litigation risks related to ethylene oxide.
The firm's analyst pointed out that the upgrade is not solely based on the expectation of positive quarterly results, although they anticipate STERIS to perform well against consensus estimates, with higher expected revenue and earnings per share. Instead, the decision to upgrade is largely influenced by the belief that the current market valuation fully accounts for the risks associated with healthcare equipment and litigation.
The analysis suggests that the potential for STERIS's stock to be re-rated over the next year is attractive, given the forecast of improved execution and accelerated growth in the Applied Sterilization Technologies (AST) segment. The firm also notes that STERIS's balance sheet is particularly strong, with net leverage at a multi-year low of 1.4 times, which could open up various capital allocation opportunities.
Additionally, the financial services firm views STERIS as a defensive investment that could be advantageous regardless of the outcome of the upcoming election. The recommendation is to take advantage of the recent weakness in the stock's absolute and relative performance as a strategic entry point for investors.
"In other recent news, STERIS Plc has reported a strong first-quarter performance for 2025, with an 8% increase in total revenue and a 10% rise in adjusted earnings per share to $2.03. The company also announced its 19th consecutive year of dividend increases and a $100 million restructuring plan aimed at enhancing operations.
KeyBanc has increased the price target on STERIS shares from $255.00 to $265.00, maintaining an Overweight rating on the stock, reflecting confidence in STERIS's financial outlook for fiscal year 2025. The company's management has expressed assurance in achieving its full-year financial targets, including low single-digit growth in Healthcare Capital Equipment.
STERIS also plans to prioritize organic investments and engage in bolt-on mergers and acquisitions. The company's net income reached $201.7 million, and its total debt decreased to $2.3 billion. Despite potential impacts of reduced funding in the pharma and bio pharma industries, STERIS reported mid-single-digit order growth and a $350 million backlog in the healthcare equipment segment. These are recent developments that could influence the company's future performance."
InvestingPro Insights
Recent data from InvestingPro aligns with Piper Sandler's optimistic outlook on STERIS. The company's market cap stands at $21.81 billion, reflecting its significant presence in the healthcare equipment sector. STERIS has demonstrated strong financial performance, with revenue growth of 14.72% over the last twelve months, reaching $5.23 billion. This growth supports the analyst's expectation of positive quarterly results.
InvestingPro Tips highlight STERIS's financial stability and shareholder-friendly policies. The company has raised its dividend for 13 consecutive years and maintained payments for 20 years, underlining its commitment to returning value to shareholders. This consistent dividend growth, coupled with a current dividend yield of 1.03%, aligns with the defensive investment characteristics noted by Piper Sandler.
Furthermore, STERIS operates with a moderate level of debt, and its liquid assets exceed short-term obligations. This financial prudence corroborates the analyst's observation of a strong balance sheet with low net leverage, positioning the company well for potential capital allocation opportunities.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips that could provide deeper insights into STERIS's investment potential.
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