STERIS (STE)

Medical equipment and services company Steris (NYSE:STE). reported revenue ahead of Wall Street’s expectations in Q4 CY2025, with sales up 9.2% year on year to $1.50 billion. Its non-GAAP profit of $2.53 per share was in line with analysts’ consensus estimates.

Company Overview

With a mission critical role in preventing healthcare-associated infections, STERIS (NYSE:STE) provides infection prevention products, sterilization services, and medical equipment that help healthcare facilities and life science companies maintain sterile environments.

The surgical equipment and consumables industry provides tools, devices, and disposable products essential for surgeries and medical procedures. These companies therefore benefit from relatively consistent demand, driven by the ongoing need for medical interventions, recurring revenue from consumables, and long-term contracts with hospitals and healthcare providers. However, the high costs of R&D and regulatory compliance, coupled with intense competition and pricing pressures from cost-conscious customers, can constrain profitability. Over the next few years, tailwinds include aging populations, which tend to need surgical interventions at higher rates. The increasing integration of AI and robotics into surgical procedures could also create opportunities for differentiation and innovation. However, the industry faces headwinds including potential supply chain vulnerabilities, evolving regulatory requirements, and more widespread efforts to make healthcare less costly.

STERIS competes with several companies across its different segments, including 3M (NYSE:MMM), Getinge (STO:GETI-B), Ecolab (NYSE:ECL), and Sterigenics International in sterilization services. In the operating room equipment space, competitors include Stryker (NYSE:SYK) and Skytron.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $5.83 billion in revenue over the past 12 months, STERIS has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, STERIS grew its sales at a solid 13.8% compounded annual growth rate. Its growth beat the average healthcare company and shows its offerings resonate with customers.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. STERIS’s annualized revenue growth of 8% over the last two years is below its five-year trend, but we still think the results were respectable.

We can better understand the company’s sales dynamics by analyzing its constant currency revenue, which excludes currency movements that are outside their control and not indicative of demand. Over the last two years, its constant currency sales averaged 7% year-on-year growth. Because this number aligns with its normal revenue growth, we can see that STERIS has properly hedged its foreign currency exposure.

This quarter, STERIS reported year-on-year revenue growth of 9.2%, and its $1.50 billion of revenue exceeded Wall Street’s estimates by 1%.

Looking ahead, sell-side analysts expect revenue to grow 6.3% over the next 12 months, a slight deceleration versus the last two years. Still, this projection is above the sector average and indicates the market is baking in some success for its newer products and services.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

STERIS has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 13.4%, higher than the broader healthcare sector.

Looking at the trend in its profitability, STERIS’s operating margin rose by 5.9 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q4, STERIS generated an operating margin profit margin of 18.3%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

STERIS’s EPS grew at a remarkable 10.3% compounded annual growth rate over the last five years. Despite its operating margin improvement during that time, this performance was lower than its 13.8% annualized revenue growth, telling us that non-fundamental factors such as interest and taxes affected its ultimate earnings.

We can take a deeper look into STERIS’s earnings quality to better understand the drivers of its performance. A five-year view shows STERIS has diluted its shareholders, growing its share count by 14.6%. This dilution overshadowed its increased operational efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q4, STERIS reported adjusted EPS of $2.53, up from $2.32 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects STERIS’s full-year EPS of $10.08 to grow 8.3%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

STERIS has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 11.3% over the last five years, better than the broader healthcare sector.

Taking a step back, we can see that STERIS’s margin expanded by 2.6 percentage points during that time. This is encouraging because it gives the company more optionality.

STERIS broke even from a free cash flow perspective in Q4. The company’s cash profitability regressed as it was 17.8 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

STERIS historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.1%, somewhat low compared to the best healthcare companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, STERIS’s ROIC has increased. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

It was good to see STERIS narrowly top analysts’ constant currency revenue expectations this quarter. We were also happy its revenue narrowly outperformed Wall Street’s estimates. Overall, this print had some key positives. Investors were likely hoping for more, and shares traded down 4.4% to $252.67 immediately after reporting.

Updated: February 4, 2026 at 10:41 PM EST

Before investing in or passing on STERIS, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

When it comes to STERIS’s business quality, there are some positives, but it ultimately falls short. First off, its revenue growth was solid over the last five years. And while STERIS’s mediocre ROIC lags the market and is a headwind for its stock price, its rising returns show management's prior bets are at least better than before.

STERIS’s P/E ratio based on the next 12 months is 24x. Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $281.63 on the company (compared to the current share price of $257.89).