What is STE's Intrinsic value?

Steris plc (STE) Intrinsic Value Analysis

Executive Summary

As of April 4, 2026, Steris plc's estimated intrinsic value ranges from $93.67 to $388.71 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $388.71 +77.7%
Discounted Cash Flow (5Y) $293.03 +34.0%
Dividend Discount Model (Multi-Stage) $237.84 +8.7%
Dividend Discount Model (Stable) $190.67 -12.8%
Earnings Power Value $93.67 -57.2%

Is Steris plc (STE) undervalued or overvalued?

With the current market price at $218.71, the stock appears to be significantly undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Steris plc's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  3. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.71 0.84
Cost of equity 7.1% 9.5%
Cost of debt 4.0% 4.6%
Tax rate 23.0% 23.2%
Debt/Equity ratio 0.09 0.09
After-tax WACC 6.8% 9.0%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 7.9% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $5,460 (FY03-2025) to $11,154 (FY03-2035)
  • Net profit margin expansion from 11% to 23%
  • Capital expenditures maintained at approximately 7% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $293 $30,215M 85.8%
10-Year Growth $389 $39,600M 73.9%
5-Year EBITDA $285 $29,461M 85.4%
10-Year EBITDA $374 $38,199M 72.9%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 33.3%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 8.3%
  • Long-term growth rate: 4.0%
  • Fair value: $237.84 (8.7% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 9.5% (Low) to 7.1% (High)
  • Long-term growth rate: 3.0% (Low) to 5.0% (High)
  • Fair value range: $77 to $304
  • Selected fair value: $190.67 (-12.8% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $826M
Discount Rate (WACC) 9.0% - 6.8%
Enterprise Value $9,150M - $12,173M
Net Debt $1,475M
Equity Value $7,676M - $10,698M
Outstanding Shares 98M
Fair Value $78 - $109
Selected Fair Value $93.67

Key Financial Metrics

Metric Value
Market Capitalization $21451M
Enterprise Value $22926M
Trailing P/E 30.31
Forward P/E 26.94
Trailing EV/EBITDA 14.70
Current Dividend Yield 109.67%
Dividend Growth Rate (5Y) 13.22%
Debt-to-Equity Ratio 0.09

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 30% $116.61
Discounted Cash Flow (5Y) 25% $73.26
Dividend Discount Model (Multi-Stage) 20% $47.57
Dividend Discount Model (Stable) 15% $28.60
Earnings Power Value 10% $9.37
Weighted Average 100% $275.41

Investment Conclusion

Based on our comprehensive valuation analysis, Steris plc's intrinsic value is $275.41, which is approximately 25.9% above the current market price of $218.71.

Key investment considerations:

  • Strong projected earnings growth (11% to 23% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.09)
  • Historical dividend growth of 13.22%

Given these factors, we believe Steris plc is currently significantly undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.