Steris (NYSE:STE) and Fortive (NYSE:FTV) were the first companies to receive emergency use authorizations (EUAs) from the FDA to allow their medical devices to decontaminate N95 or N95-equivalent respirators for reuse.

Medical sterilization was already a growing business, but it has really taken off amid the coronavirus pandemic.

There are two reasons the market for medical device cleaning was already expected to rise at a compound growth rate of 5.75% through 2016: an aging population and an increased number of surgical procedures. The latter took a nosedive over the past few months because of coronavirus concerns -- but the same concerns helped buoy the share prices of Steris and Fortive.

Steris was at $165.40 on June 8, up 9% for the year, before falling along with the rest of the market on Thursday. In midday trading Friday, it was roughly even for the year. Fortive was at $62.98 at midday on Friday, roughly 17.5% down for the year, but still up 13.9% in the past month.

Fortive has had three consecutive years of revenue growth while Steris has had five. Both appear to be attractive investments. 

Medical personnel putting hands together.


The case for Fortive

Fortive, which spun off from Danaher (NYSE:DHR) in 2016, is a very diverse company, with more than 20 former companies under its umbrella. The portion of the Everett, Wash.-based business that is involved in medical sterilization is Advanced Sterilization Products (ASP), a former division of Johnson & Johnson (NYSE:JNJ) that Fortive purchased in 2019 for $2.7 billion.

Despite the greater demand for sterilization equipment because of COVID-19, the drop in elective surgical procedures during the shutdown kept revenue down for Fortive's ASP division, CEO Jim Lico said.

At ASP, we saw a significant drop in surgical procedure volume in China during Q1, upwards of 85% at the height of the COVID-19 response, but volume began to rebound by the end of March and continued into April. We expect the same pattern to play out in other geographies [as we have] seen elective procedures get delayed, and we likewise expect volumes to begin to normalize as soon as hospitals get to the other side of COVID-19 peaks and can begin to address the pent-up demand for these procedures.

In the first quarter, Fortive's sales were up 7.6% to $1.7 billion, driven in part by growth from its acquisitions. But the net earnings for the professional instrumentation and technologies business were down 74.5% to $41.9 million. The company said it was withdrawing its second-quarter and full-year guidance because of the uncertainties of the coronavirus pandemic.

Fortive kept its dividend at $0.07, the same as it has been since the company began in 2016. As management is still very much focused on growth, it probably won't be raising that dividend for awhile. That works out to a yield of 0.44% with a payout ratio of 8% over the trailing 12 months (TTM).

The case for Steris

Steris, like Fortive, has said it won't issue full-year guidance because of the pandemic. Unlike Fortis, this Mentor, Ohio, company is solely focused on infection prevention and procedural products. However, its fourth-quarter numbers were a pleasant surprise. 

Revenue grew 7% to $823 million, compared with $768.2 million in the same quarter in 2019, and that included a 14% rise in revenue for the company's applied sterilization technologies (AST) division. Net income also rose to $140.5 million, an increase of 7% year-over-year, and earnings per share rose to $1.64.

Steris CEO Walt Rosebrough said he sees considerable growth ahead for his company's AST division, in part because of the coronavirus.

We currently see continued growth in those AST facilities that process for pharma for PPE like gowns and gloves and for personal use medical devices for the home setting, like insulin pumps and blood glucose monitors. We have, however, begun to see declines in time-deferrable procedure-related devices like orthopedic implants. We expect this to be a relatively short-term phenomenon as healthcare providers begin doing these procedures again.

Steris also has a dividend, which it has raised for 10 consecutive years, including an 8.8% boost last year to $0.37, giving it a yield of 0.98% with a payout ratio of 26.2% (TTM), easily enough to cover the dividend.

For the short term, Steris is the obvious choice

I don't think either company is a bad choice for healthcare investors, as they both have solid records of growth over the past few years.

But Steris, even though it has less diversification than Fortive, seems to be handling the vagaries of the pandemic more effectively. It also looks poised for a greater jump once elective surgical procedures begin to pick back up. On top of that, its better dividend will reward patient investors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.