On Wednesday, Sotera Health (NASDAQ:SHC) saw its price target increased by Jefferies to $18.00, up from the previous target of $16.50. The firm kept its Buy rating on the stock intact. The price adjustment follows a significant rise in the company's shares, which have surged approximately 36% since April.
The analyst observed that Sotera Health's shares might experience a period of stabilization after the recent sharp increase. The company's Steri segment showed a slight underperformance. Despite facing a roughly $2 million impact on EBITDA due to foreign exchange pressures, which is also expected to affect projections for 2025, Sotera Health's full-year guidance for 2024 remained unchanged. This suggests the company had set a higher fourth-quarter target implicitly.
A positive aspect highlighted by the analyst was the margin improvement in Nelson Labs. The division's margins expanded by 130 basis points, indicating a stronger baseline for profitability as the mix of RCA, or revenue cycle activities, becomes more balanced.
Looking ahead, Jefferies introduced its free cash flow (FCF) estimate for 2026 at $226 million, which represents a year-over-year increase of $92 million. This figure is considered a "normalized" base for the company. The new price target of $18 reflects a slight discount to Sotera Health's peers, according to the firm's valuation model.
In other recent news, Sotera Health's third-quarter earnings call confirmed its full-year 2024 guidance, with expected revenue in the range of $1.09 billion to $1.112 billion and an adjusted EBITDA between $549 million and $560 million, representing a 4-6% year-over-year growth. Citi has raised Sotera's target to $20, while JPMorgan (NYSE:JPM) increased its price target from $14.00 to $15.00.
Both firms maintained their respective ratings on the stock. In other developments, Sotera Health launched a secondary offering of 25 million shares of common stock, expected to result in Warburg Pincus LLC and GTCR LLC relinquishing their majority ownership. A change in the board also occurred with David A.
Donnini's resignation, reducing GTCR's designated directors from three to two. Despite potential foreign exchange headwinds and a minor delay in Sterigenics' capacity expansion, the company reaffirmed its full-year 2024 outlook, projecting a 4% to 6% growth in revenue and adjusted EBITDA compared to 2023.
InvestingPro Insights
Sotera Health's recent performance aligns with several key metrics and insights from InvestingPro. The company's market capitalization stands at $4.37 billion, reflecting its significant presence in the healthcare sector. InvestingPro data shows a robust revenue growth of 12.5% over the last twelve months, with quarterly revenue growth of 8.35% in Q2 2024, supporting Jefferies' positive outlook.
The company's profitability is underscored by its impressive gross profit margin of 55.18% and operating income margin of 34.23% for the last twelve months. These figures suggest strong operational efficiency, which could contribute to the improved free cash flow projections mentioned in the analyst report.
InvestingPro Tips highlight that Sotera Health is trading at a low P/E ratio relative to its near-term earnings growth, with a PEG ratio of 0.98. This indicates potential undervaluation, aligning with Jefferies' decision to raise the price target. Additionally, the company's liquid assets exceeding short-term obligations point to a solid financial position, which could support future growth initiatives.
It's worth noting that Sotera Health has experienced a significant price uptick of 36.58% over the last six months, corroborating the article's mention of a 36% surge since April. This momentum, combined with analysts' expectations of profitability this year, suggests a positive trajectory for the company.
For investors seeking more comprehensive analysis, InvestingPro offers additional tips and insights, with a total of 10 tips available for Sotera Health.
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