Steris Corp (STE) was able to keep the momentum going when it recently reported its 11th consecutive positive earnings surprise. Management also raised the lower end of its guidance, prompting several analysts to raise their estimates higher.
Meanwhile the company has been rewarding its shareholders through stock buy backs and impressive dividend hikes. The stock also trades at a reasonable price and recently became a Zacks #2 Rank (Buy).
Company Description
Steris Corp provides infection prevention, contamination control, and surgical support systems to healthcare, pharmaceutical, scientific, research, industrial, and governmental customers worldwide.
Approximately 24% of revenue comes from outside of the United States.
Another Positive Earnings Surprise
On November 3, Steris Corp reported its results for the second quarter of fiscal year 2011. Earnings per share came in at $0.55, beating the Zacks Consensus Estimate by a penny. It was the company’s 11th consecutive positive earnings surprise.
Total revenue declined 0.6% from the second quarter of fiscal 2010. Healthcare revenue, which makes up over 70% of sales, declined 1.3% over the same period.
The gross margin improved, however, from 42.2% to 43.2%. Also, operating expenses decreased 3% year-over-year, leading to operating income growth of 9.7%.
Outlook
Following the release of its second quarter results, management revised the low end of its guidance higher for 2011. The current range is $2.15 to $2.30 per share, up from $2.00 to $2.30. The company also expects healthcare revenue growth in the mid-single digits.
The Zacks Consensus Estimate is within management’s guidance at $2.22, essentially flat compared to the previous year’s EPS. The 2012 consensus estimate is currently $2.50, representing 13% annual EPS growth.
Strong Cash Flow
Steris produces strong free cash flow and has been using that cash to reward its shareholders.
The company began paying a dividend in 2005, and has increased it 5 times since then at a compound annual growth rate of 30.3%. It currently yields 1.7%.
The company also spent approximately $16.2 million in the quarter repurchasing 534,000 shares.
The stock trades at 15.7x forward earnings, a discount to the peer group average of 19.4x. Its price to sales ratio is also below its peers, trading at 1.6x compared to 2.3x.
The company is based in Mentor, Ohio and has a market cap of $2.1 billion.
Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.
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