Why You Should Get Excited About This Health Care Company

It is a cliche that the developing world will slowly adopt the health care standards of developed countries. However, investors must understand that there is no upcoming adoption in high-end and life-saving drugs -- since these are critical to human health, many of these have already been adopted at premium pricing. Further adoption will come mainly through low-cost generics.

There is one sort of adoption that is comparatively low cost and where there is considerable investment future, however. This is in infection prevention, sterility, and other assorted cleanliness-related hospital products. This is especially relevant for small surgical and outpatient products, which are areas where the developing countries have to catch up and where many American companies are industry leaders.

Out of them all, given its nimbler size, the sheer number of products coming under Steris'  (NYSE: STE  ) umbrella is amazing. The company offers a wide range of popular products in infection prevention, as well as services including sterilization and microbial reduction, to customers across the world. The company continues to deliver stable growth to investors.

A well-diversified company
Steris is a well-diversified company, operating in the health care and life sciences segments, as well as another which it calls Isomedix. Health care happens to be its core business, making up 70% of sales and 50% of earnings. In this segment, it provides equipment and accessories to hospitals and other facilities, and this is the growth segment in developing countries. The company can leverage its huge IP portfolio, especially its foreign-registered patents and trademarks, to approach these markets. As of now, it has 328 United States patents, 823 foreign patents, and 1,123 trademarks globally. In addition, 82 United States applications and 282 foreign applications are pending as of March 31.

Besides this, the company operates in the life sciences segment, which is also quite important a market in developing economies these days. With the growing number of research facilities coming up in emerging economies, especially for generics and over-the-counter medicines, a segment that offers equipment to assist research can be a growth segment.

Isomedix -- which sells contract processing services such as gamma irradiation, ethylene oxide technologies, and laboratory testing services -- probably has more potential in the domestic market. This is mainly due to the nature of the business, which requires close proximity to customers.

Another target industry
Besides the developing world, another area of interest for Steris would be the increasing demand for health care services and changes in health care reimbursement policies domestically. This will create a huge upside in the infection prevention market, and Steris is properly positioned to take advantage of the expected 5.2% growth of the global infection prevention market, which is slated to reach $109 billion by 2017.

Strong financials support Steris' growth
The company manages to maintain an excellent balance sheet and steady cash flow. This last quarter, the company's cash balance was $165.8 million, and free cash flow was $11 million. Revenues increased by 9%, driven by growth in all three segments. The company expects this trend to continue, with adjusted net income forecast to be at a range of $2.47 to $2.60 in the 2014 fiscal year. Overall, this is a business that has not yet climbed a cusp and generates confidence from its steady growth.

Comparative performance in the infection prevention market
Ecolab (NYSE: ECL  ) develops and markets cleaning and sanitizing products, pest elimination, equipment maintenance and repair services for the hospitality, food service, health care and industrial markets. Like Steris, its strong balance sheet supports sales growth. The company improved net sales by 13%, and expects similarly solid performance in the coming periods especially in core business. Ecolab anticipates 17%-19% upside in adjusted earnings per share to $3.48-$3.56 in the 2013 fiscal year, and performance-wise it's a strong competitor to Steris.

Cantel Medical (NYSE: CMN  ) continues to focus on core segments with increasing demand from endoscopic, health care disposal, water purification and filtration products. The company expects to drive growth opportunities through investment in R&D, sales, and marketing and acquisitions to develop, expand, and enhance product potential in the health care market. In the recent quarter ended on April 30, the company's revenues were $105 million (+8%), with net income of $9 million, or $0.44 per share. Like Steris and Ecolab, Cantel has a solid financial position with cash balance of $30.7 million that is driven by the growth in the sector.

Way ahead
Steris may not be an interesting company in the sense that there's not a lot happening there on the face of it. That is a sure sign of steady growth and a low-profile business, however. The growing market in the developing world and the changes in preventive health care insurance in the U.S. will create potential upside for Steris investors.

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