Needham has downgraded sterilization services provider Steris plc (NYSE:STE) to Hold from Buy, citing legal overhang from a recent court case in which Sterigenics unit of its rival Sotera Health (SHC) was found liable for generating carcinogenic agent ethylene oxide.
SHC's Sterigenics and STE's Applied Sterilization Technologies lead the medical device sterilization services market. And the latter is also facing some lawsuits related to EO emissions, but not to the extent of SHC, the analysts led by Mike Matson argued.
With SHC required to pay $363M as damages in the Illinois ruling, "we expect concerns about STE's potential EO liabilities to continue to weigh on its shares," they said, adding that the success of the SHC lawsuit could lead to more EO lawsuits.
While STE can manage the impact given its size, diversification, and financial position, the analysts expect the uncertainty to hurt company shares as management takes time to project and make provisions for potential liabilities.
Applied Sterilization Technologies made up ~19% of STE's topline in 2021, generating $853.0M with ~24% YoY growth.
Note: This article was amended to add the correct ticker symbol for Steris.