STERIS PLC Valuation – August 2018 $STE

Company Profile (excerpt from Reuters): STERIS plc provides infection prevention and other procedural products and services. The Company operates through four segments: Healthcare Products, which offers infection prevention and procedural solutions for healthcare providers, including capital equipment and related maintenance, and installation services, as well as consumables; Healthcare Specialty Services, which provides a range of specialty services for healthcare providers, including hospital sterilization services, instrument and scope repairs, and linen management; Life Sciences, which offers capital equipment and consumable products, and equipment maintenance and specialty services for pharmaceutical manufacturers and research facilities, and Applied Sterilization Technologies, which offers contract sterilization and laboratory services for medical device and pharmaceutical customers and others. Its Corporate and other segment includes the Defense and Industrial business unit.


Downloadable PDF version of this valuation:

ModernGraham Valuation of STE – August 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $9,719,200,529 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.65 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 75.38% Pass
6. Moderate PEmg Ratio PEmg < 20 37.43 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.17 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.65 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.15 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $3.07
MG Growth Estimate 5.59%
MG Value $60.45
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $44.53
MG Value based on 0% Growth $26.11
Market Implied Growth Rate 14.46%
Current Price $114.95
% of Intrinsic Value 190.15%

Steris PLC is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.24 in 2015 to an estimated $3.07 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 14.46% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Steris PLC revealed the company was trading above its Graham Number of $62.94. The company pays a dividend of $1.21 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 37.43, which was below the industry average of 44.66, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-11.27.

Steris PLC receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$11.27
Graham Number $62.94
PEmg 37.43
Current Ratio 2.65
PB Ratio 3.17
Current Dividend $1.21
Dividend Yield 1.05%
Number of Consecutive Years of Dividend Growth 13

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2018
Total Current Assets $988,889,000
Total Current Liabilities $373,842,000
Long-Term Debt $1,320,064,000
Total Assets $5,051,814,000
Intangible Assets $3,032,408,000
Total Liabilities $1,952,626,000
Shares Outstanding (Diluted Average) 85,509,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.66
Mar2018 $3.39
Mar2017 $1.28
Mar2016 $1.56
Mar2015 $2.25
Mar2014 $2.17
Mar2013 $2.72
Mar2012 $2.31
Mar2011 $0.85
Mar2010 $2.16
Mar2009 $1.86
Mar2008 $1.20
Mar2007 $1.25
Mar2006 $1.02
Mar2005 $1.23
Mar2004 $1.33
Mar2003 $1.12
Mar2002 $0.65
Mar2001 $0.02
Mar2000 $0.15
Mar1999 $1.20

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.07
Mar2018 $2.23
Mar2017 $1.76
Mar2016 $2.07
Mar2015 $2.24
Mar2014 $2.17
Mar2013 $2.10
Mar2012 $1.76
Mar2011 $1.47
Mar2010 $1.69
Mar2009 $1.41
Mar2008 $1.19
Mar2007 $1.19
Mar2006 $1.13
Mar2005 $1.08
Mar2004 $0.88
Mar2003 $0.65

Recommended Reading:

Other ModernGraham posts about the company

Steris PLC Valuation – Initial Coverage $STE

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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