Sotera Health Sells at Significant Discount Despite Top-Notch Margins, According to Analyst
Written by Emily J. Thompson, Senior Investment Analyst
Updated: Dec 18 2025
0mins
Source: Benzinga
Investor Interest in Sotera Health: Sotera Health is gaining attention from investors due to reduced litigation risks and improved free cash flow, highlighting its integrated sterilization platform and strong customer base.
William Blair Coverage Initiation: William Blair has initiated coverage on Sotera Health, noting its leadership in sterilization solutions and the competitive advantages of its integrated service offerings and high margins.
Valuation Discount Compared to Peers: Despite a strong financial outlook, Sotera is trading at a significant discount to its peers, with potential for upside as free cash flow improves and interest expenses decrease.
Re-Rating Potential: As legal risks diminish, analysts expect Sotera's stock to re-rate towards its long-term average EBITDA multiple, suggesting a potential 45% upside by 2027 based on future earnings estimates.
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Analyst Views on STE
About STE
STERIS Plc is a provider of products and services that support patient care with an emphasis on infection prevention. Its segments include Healthcare, Applied Sterilization Technologies (AST), and Life Sciences. Its Healthcare segment provides a comprehensive offering for healthcare providers worldwide, focused on sterile processing departments and procedural centers, such as operating rooms and endoscopy suites. AST segment supports medical device and pharmaceutical manufacturers through a global network of contract sterilization and laboratory testing facilities, and integrated sterilization equipment and control systems. Its Life Sciences segment provides a comprehensive offering of products and services designed to support biopharmaceutical and medical device research and manufacturing facilities, in particular those focused on aseptic manufacturing. Its portfolio includes a full suite of consumable products, equipment maintenance, specialty services, and capital equipment.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Revenue Growth: STERIS plc reported a 9% year-over-year increase in total revenue for Q3, with constant currency organic revenue growing 8%, primarily driven by volume increases and a 200 basis point price rise, indicating strong market performance.
- Margin Pressure: Despite revenue growth, gross margin declined by 70 basis points to 43.9%, primarily due to increased tariffs and inflation, although productivity and volume improvements partially offset this pressure, reflecting challenges in cost control.
- Profitability Maintained: Adjusted net income reached $249.4 million, with earnings per diluted share at $2.53, a 9% increase from the prior year, indicating the company's ability to maintain profitability amid external pressures, even as EBIT margin decreased to 22.9%.
- Outlook Reaffirmed: The company reaffirmed its fiscal 2026 revenue growth outlook of 7% to 8% and earnings per share guidance of $10.15 to $10.30, although the likelihood of achieving the higher end of this range is reduced due to an additional $10 million in tariffs, demonstrating management's cautious stance on future performance.
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- Earnings Performance: Steris reported a non-GAAP EPS of $2.53 for Q3 2026, aligning with market expectations, which indicates the company's consistent ability to maintain profitability amidst industry challenges.
- Revenue Figures: The company achieved revenues of $1.1 billion in the third quarter, showcasing robust sales growth that reflects its strong market position in the medical device sector despite external pressures.
- Market Short Trends: In October, short bets on the S&P 500 healthcare sector rose to 2.00%, indicating a cautious sentiment among investors that could lead to increased volatility in Steris's stock price.
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- Earnings Per Share Improvement: Reported EPS was $1.96, with adjusted EPS rising to $2.53, a notable increase from $2.32 in the prior year, reflecting successful strategies in cost control and revenue growth.
- Strong Segment Performance: The healthcare segment saw a 9% revenue increase to $1.1 billion, with service and consumable revenue growing by 11% and 8% respectively, indicating sustained demand and market share growth in the medical equipment sector.
- Robust Cash Flow: For the first nine months of fiscal 2026, net cash provided by operations reached $1 billion, with free cash flow at $737.6 million, significantly up from the previous year, demonstrating the company's strong financial health and capacity for future investments.
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- Historical Performance: Over the past two years, Steris has surpassed EPS estimates 88% of the time and revenue estimates 63% of the time, demonstrating its stable performance and investor confidence in the company.
- Estimate Revisions: In the last three months, EPS estimates have seen two upward revisions and three downward adjustments, while revenue estimates have faced four downward revisions without any upward changes, suggesting market caution regarding future growth.
- Financial Guidance: Steris has raised its fiscal 2026 guidance, projecting revenue growth between 8% and 9% and an EPS outlook of $10.15 to $10.30, showcasing robust performance across its business segments.
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