STERIS plc (STE) stock intrinsic value fair value estimate & owner earnings analysis

STERIS sells the things hospitals, surgery centers, drug makers and medical device manufacturers need to keep instruments and products sterile. It has three segments: Healthcare, Applied Sterilization Technologies (contract sterilization of medical products for manufacturers) and Life Sciences (consumables, equipment and services supporting biopharmaceutical and medical device manufacturing). It sells capital equipment, consumables and service. Revenue in the year ended March 31, 2026 was $5,935.9M, up 8.7%. Service revenue grew 11.1% and consumables 7.3%. About 73% of sales are in the United States. No single customer exceeds 10% of any segment, and order backlog at March 31, 2026 was $490.7M, up from $452.9M a year earlier. How we measured earnings: we started from operating cash flow and removed swings in receivables, inventories, payables and accruals, because these reverse over time. We then deducted share-based pay as a real cost and deducted only the part of capital spending needed to maintain the business (about 7% of revenue is spent on capex; the portion tied to revenue growth was treated as discretionary). On that basis, earnings per diluted share were $3.83 in fiscal 2019, $4.90, $4.78, $5.77, $6.27, $7.50, $6.83 and $9.29 in fiscal 2026. STERIS acquired Cantel Medical on June 2, 2021, and revenue rose from $3,107.5M to $4,223.4M while the diluted share count rose from about 86 million to about 98 million, so we measure the business as it exists now from fiscal 2023, the first full year after that deal, and use the middle of the four years fiscal 2023 to fiscal 2026 ($6.27, $7.50, $6.83, $9.29), which is about $7.20 per share. Fiscal 2026 rose 36% over fiscal 2025, but one strong year does not move our starting point. A $206.4M non-cash loss recorded in fiscal 2024 when a business was classified as held for sale is added back as a non-cash charge; the business itself was not what we are valuing. Amortization of acquired intangibles is also non-cash and is added back. Because acquired assets wear out, earnings in every case are allowed to fade to zero after the growth period rather than continue indefinitely, and the bear case assumes no growth at all. Base case ($112 per share): earnings start at $7.20 and grow 5% a year for five years, then 4% a year for five more, then hold flat for five years and fade gradually to zero over the following ten. The growth is credited because it is the continuation of what the business has done: revenue grew every year through fiscal 2026, including the pandemic year, and recurring service and consumables sales, which follow the installed base of sterilizers and hospital procedures, grew faster than equipment sales. The base case starts below the fiscal 2026 result of $9.29 and assumes year-one growth well under the 36% just achieved. We did not credit margin expansion, share gains, new products or acquisitions. Bear case ($60 per share): earnings stay at $6.27, the lowest full year since the Cantel deal, with no growth for ten years and then a fade to zero over ten years. The named pressures are the fall in capital equipment revenue in the Applied Sterilization Technologies segment in fiscal 2026, labor cost inflation that the company cites as a partial offset to Life Sciences operating income growth, and about $1.9 billion of debt, which leaves less room if cash flow weakens. Bull case ($144 per share): earnings start at $9.00, close to the fiscal 2026 level, and grow 5% a year for ten years, then hold flat for five years and fade over ten. This is what results if fiscal 2026 proves to be the new normal, supported by higher pricing and rising service revenue. What would make this wrong: fiscal 2026 operating cash flow of $1,341.4M was the highest in the period and we did not assume it repeats; if it does, the base case is too low. If recurring service and consumables growth slows toward equipment-like rates, the base case is too high. The margin-of-safety price of $65 sits close to the bear case because this is a stable, recurring-revenue business whose downside can reasonably be bounded.