Warren Buffett has showcased his value-based financial philosophy through his notable investment in Wrigley's gum.
This strategic move allowed him to secure a consistent and dependable cash flow by acquiring a company that produces an evergreen product with high demand and straightforward production processes. It's a testament to Buffett's ability to identify enduring value in the market.
Similarly, in the healthcare sector, there are notable names that align with this philosophy.
Take Steris (STE), a Dublin-based company specializing in sterilization. In the world of healthcare, nothing can replace the importance of a pristine operating room, and Steris plays a critical role in ensuring the cleanliness and safety of these environments.
While our personal use of disinfectant products might have changed over the years, hospitals remain hyper-vigilant in their disinfection protocols.
Steris is a trusted provider, as hospitals understand the significance of maintaining sterile conditions to combat antibiotic-resistant superbugs and ensure successful surgeries. The company's focus on sterilization and related products positions it as a preferred choice among healthcare providers.
Some argue that Steris stock is on the pricier side, trading at 22.3 times 12-month forward earnings compared to the S&P 500 index's 18.3 times. However, the value it offers makes the price reasonable.
As hospital procedures return to pre-Covid levels and supply chains normalize, Steris stands to benefit significantly. Additionally, a substantial portion of its revenue comes from recurring sources, as hospitals consistently require sterilization chemicals and disinfectants.
Despite being a stable company, Steris has recently taken investors on a thrilling rollercoaster ride.
In February, its stock faced a setback when it lowered its full-year revenue guidance. However, the drop was mainly due to ongoing supply-chain challenges, not internal issues or client withdrawal.
The company's resilience became evident in mid-May when Steris delivered impressive fiscal fourth-quarter results. Surpassing expectations both in terms of top- and bottom-line figures, it also provided a conservative yet appealing forecast for fiscal 2024.
Interestingly, despite these positive developments, the stock has dipped around 5% since the May earnings surge. Meanwhile, for fiscal 2024, Steris is projected to achieve earnings per share of $8.66, representing over a 5% year-over-year increase, with revenue expected to climb by more than 7% to $5.33 billion.
These figures would set new record highs for the company, which has consistently achieved double-digit compound annual growth rates over the past five years.
One contributing factor to Steris' success is its ability to maintain stable pricing.
Unlike other healthcare companies that experience negative pricing trends, Steris has the advantage of commanding higher prices due to the unique nature of its sterilization services, which aren't typically targeted for cost-cutting measures.
In fact, Steris has already increased prices by 3.3% in the previous quarter to keep pace with inflation.
Furthermore, Steris' recent acquisition of Cantel Medical has significantly bolstered its operations in the dental industry.
With Cantel's valuable assets, Steris has expanded its expertise in a growing market fueled by technological advancements.
Notably, the company boasts an impressive number of patents, totaling over 2,346 in 2022, highlighting its commitment to innovation.
Although it’s not as exciting as other segments, fierce competition unfolds among industry giants vying for prominence in this vital sector.
Think of the juggernauts like 3M (MMM), Baxter International (BAX), and Boston Scientific (BSX), each flexing their innovative muscles to claim a larger slice of this healthcare pie.
Curiously, despite being the largest player in the U.S. medical sterilization and services market, Steris maintains a modest market capitalization of only $20 billion. This is considerably smaller than healthcare giants like Johnson & Johnson (JNJ).
This aspect, combined with the possibility of being a takeover target, albeit not currently under discussion, serves as additional support for the stock.
Overall, Steris has found a stable position in the market by establishing itself as a provider of essential cleaning products in hospitals and research labs.
Once these relationships are established, Steris continues to generate sales through ongoing demand for its trusted solutions. In times of market volatility, Steris is a reliable investment, offering a safe haven for investors navigating uncertain waters.
Just as Warren Buffett sought enduring value in his investments, Steris represents a company with a strong foundation in a critical sector. If you also want a slice of the pie, I suggest you buy the dip.
