Steris Fights Infection, Stock Slump

Steris' revenue is allocated among three business units. Health care is the largest, representing 71% of the total. Customers include hospitals and surgical centers. Life sciences is the second biggest, accounting for 18%, with pharmaceutical manufacturing and research clients. Isomedix is the smallest subsidiary, making up 11% of revenue and selling to medical-device manufacturers, consumers and industrial customers.

The defense and industrial group operates within the life sciences division and provides specialized services for the government and corporations. Steris recently developed what it calls a Modified Vaporized Hydrogen Peroxide Decontamination Technology in conjunction with the U.S. Army. The vapor is a safe and effective way to sterilize areas with electronic equipment. Defense and industrial represents a relatively small portion of total revenue, indicating an area of potential growth if the company can win government contracts.

A report was released this week warning the Obama administration that the country could face a biological terrorist attack before 2013. This information could act as a catalyst to shift defense spending toward companies like Steris, which have expertise in pathogen sterilization. A potential shift in defense spending might make Steris an attractive target for a large aerospace and defense company.

There are six other research firms currently covering Steris, three of which rate the stock "buy" and three "hold." These are positive reviews given current market turmoil, but there are numerous risks facing the company. Steris has a remarkably high institutional-owned percentage of 94%, which indicates that the stock might face a quick decline if it misses a quarterly earnings estimate.

On the positive side, institutional investors are obviously optimistic about Steris. Be wary of the "value trap" in a market selloff. Strong fundamentals and value are no guarantee of share-price appreciation. Steris is relatively liquid with average daily trading volume of 850,522 shares.