What happened

Shares of Sotera Health (SHC -2.42%) were falling 8.6% as of 12:36 p.m. EST on Wednesday and dropped as much as 12.8% earlier in the day. The decline came after the company announced its third-quarter results Wednesday morning.

Sotera reported revenue in the third quarter of $226 million, up 13% year over year and higher than the average analysts' estimate of $221.6 million. The company posted adjusted earnings per share (EPS) of $0.21. This result reflected improvement from adjusted EPS of $0.12 in the prior-year period. It also narrowly topped the consensus estimate of $0.20. 

With both revenue and earnings beats, why is the healthcare stock falling? Sotera narrowed its full-year 2021 revenue guidance. The company previously forecast revenue growth of between 12% and 15% but lowered the upper end of the range to 14%. Sotera now looks for 2021 revenue between $920 million and $930 million, below the average analysts' estimate of $932.9 million. 

Surgical instruments with surgeons in the background.

Image source: Getty Images.

So what

Sotera's business continues to perform well overall. The company's Sterigenics unit, which provides sterilization solutions, delivered year-over-year revenue growth of 15.1%. Its Nordion unit, which provides Cobalt-60 and gamma irradiation systems, generated even stronger revenue growth of 41.9%. However, sales for Sotera's Nelson Labs laboratory testing services business slipped 2.6% year over year due to lower demand for pandemic-related testing.

The company's guidance wasn't quite what investors hoped it would be. However, with Sotera's shares trading at nearly 26 times expected earnings, even minor disappointments are likely to cause the stock to slide.

Now what

Probably the main thing to watch with Sotera going forward is how COVID-19 impacts its business. The company is likely to see a slow recovery in medical device testing while demand for personal protective equipment continues to decline.