STERIS Plc – Value Analysis (NYSE:STE) : July 19, 2016

Capitalcube gives STERIS Plc a score of 53.

Our analysis is based on comparing STERIS Plc with the following peers – Hill-Rom Holdings, Inc., Stryker Corporation, Cantel Medical Corp., Invacare Corporation, Thermo Fisher Scientific Inc., Owens & Minor, Inc., Ecolab Inc., CONMED Corporation, 3M Company and Johnson & Johnson (HRC-US, SYK-US, CMN-US, IVC-US, TMO-US, OMI-US, ECL-US, CNMD-US, MMM-US and JNJ-US).

Investment Outlook

STERIS Plc has a fundamental score of 53 and has a relative valuation of OVERVALUED.

Fundamental Score

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Company Overview

  • Considering peers, relative underperformance over the last year and the last month suggest a lagging position.
  • STERIS Plc trades at a lower Price/Book multiple (1.95) than its peer median (2.95).
  • The market expects faster earnings growth from STE-US than from its peers and also a turnaround in its current ROE.
  • STE-US has relatively low profit margins and median asset efficiency.
  • Changes in annual revenues (relative to peers) are better than the change in its earnings (relative to peers), implying the company is focused more on revenues.
  • Over the last five years, STE-US‘s return on assets has declined from about median to less than the median among its peers suggesting that the company’s historical competitiveness in operations is slipping away.
  • The company’s median gross margin and relatively low pre-tax margin suggest high operating costs versus peers.
  • Compared with the peers chosen, STE-US has had faster revenue growth in prior years and a current P/E ratio that suggests faster growth in the future suggesting superior growth expectations.
  • The company is likely overinvesting in a business with only median returns.
  • STE-US has additional debt capacity.

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Leverage & Liquidity

STE-US has additional debt capacity.

  • With debt at a reasonable 21.07% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 19.47%), and a well-cushioned interest coverage level of 7.55x, STE-US has the capacity to borrow some more.
  • All 10 peers for the company have an outstanding debt balance.

STE-US has moved to a relatively high liquidity from an Quick & Able profile at the prior year-end.

  • STE-US‘s interest coverage is its lowest over the last four years and compares to a high of 17.67x in 2012.
  • The decrease in its interest coverage to 7.55x from 12.24x (in 2015) was also accompanied by a decrease in its peer median during this period to 8.05x from 12.74x.
  • STE-US‘s debt-EV is its highest over the last four years and compares to a low of 11.13% in 2012.
  • The increase in its debt-EV to 21.07% from 13.40% (in 2015) was also accompanied by an increase in its peer median during this period to 19.47% from 13.40%.
  • Relative to peers, debt-EV rose 1.60 percentage points.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Hill-Rom Holdings, Inc. 40.95 2 2.95 10.73
Stryker Corporation 18.63 3.55 21.69 43.73
Cantel Medical Corp. 4.57 2.48 29.67 64.62
Invacare Corporation 36.05 1.99 -2.51 5.37
Thermo Fisher Scientific Inc. 21.37 1.03 6.1 23.99
Owens & Minor, Inc. 19.47 1.88 8.34 31.77
Ecolab Inc. 17.39 1.01 8.05 31.66
CONMED Corporation 31.33 3.57 6.37 18.98
3M Company 10.06 1.51 70.79 65.15
Johnson & Johnson 8.22 2.83 32 82.84
STERIS Plc 21.07 2.43 7.55 25.12
Peer Median 19.47 2 8.05 31.66
Best In Class 4.57 3.57 70.79 82.84

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Company Profile

STERIS Plc manufactures surgical and other medical supplies. It focuses primarily on healthcare, medical devices, pharmaceuticals, and research. The company operates through the following segments: Healthcare Products, Healthcare Specialty Services, Life Sciences and Applied Sterilization Technologies. The Healthcare Products segment offers infection prevention and procedural solutions for healthcare providers worldwide, including capital equipment and related maintenance and installation services, as well as consumables. The Healthcare Specialty Services segment provides a range of specialty services for healthcare providers including hospital sterilization services, instrument and scope repairs, and linen management. The Life Sciences segment offers capital equipment and consumable products, and equipment maintenance and specialty services for pharmaceutical manufacturers and research facilities. The Applied Sterilization Technologies segment offers a contract sterilization and laboratory services for medical device and pharmaceutical Customers and others. STERIS was founded on October 9, 2014 and is headquartered in Leicester, United Kingdom.

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