STERIS plcSTENYSE

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DCF Valuation

DCF Valuation Summary

Hold

Fair Value: $254.55 per share(market-calibrated)

+4.6%

Upside to Fair Value

Current

$243.35

Pure Model

$251.60

Fair Value

$254.55

Bull Case

$313.42

Bear Case

$195.85

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

4.54%

Calibrated Growth

3.23%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $251.60.

What's Driving This Ratingfor STE

↓

CapEx normalizing toward maintenance

Historical CapEx is 5.93% of revenue (heavy investment phase). Model fades this to 3.50% by Year 10, freeing up ~$206M in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 17.21% — below the sector mature average of 20.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $1.6B (19.42% margin).

→

Moderate revenue growth

Analyst consensus projects 8.80% revenue growth, fading to 3.00% by Year 10. Revenue reaches $8.5B (vs $5.5B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $191.61/share (18.1x terminal FCF) while exit multiple gives $311.58/share (34.5x terminal FCF). The 24x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.00% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $243.35, the market implies 4.54% perpetual growth — 154bps above the model's 3.00%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 69.57% indicates efficient cash generation. FCF reaches $1.7B by Year 10 (19.54% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.04

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)9.20%

Cost of Debt

Pre-tax Cost of Debt4.25%

Tax Rate23.19%

After-tax Cost of Debt3.26%

Equity Weight (E/V)91.59%

Debt Weight (D/V)8.41%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (91.59% × 9.20%) + (8.41% × 3.26%)

= 8.70%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$5.9B	$6.8B	$7.3B	$7.8B	$8.5B
EBIT	$1.0B	$1.2B	$1.3B	$1.5B	$1.6B
Tax	$237M	$270M	$309M	$340M	$382M
NOPAT	$785M	$894M	$1.0B	$1.1B	$1.3B
+ Depreciation	$515M	$586M	$635M	$673M	$736M
- Capex	$352M	$365M	$355M	$335M	$297M
- Δ NWC	$90M	$84M	$40M	$42M	$46M
Free Cash Flow	$858M	$1.0B	$1.3B	$1.4B	$1.7B
Discount Factor	0.920	0.779	0.659	0.558	0.434
Present Value	$790M	$803M	$833M	$793M	$720M

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$1.7B

Terminal Growth Rate3.00%

WACC8.70%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$30.0B

PV of Terminal Value$13.0B

Exit Multiple Method

Year 10 EBITDA$2.4B

Exit Multiple (EV/EBITDA)24.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$57.2B

PV of Terminal Value$24.8B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$7.9B

PV of Terminal Value$13.0B

Enterprise Value$20.9B

(-) Net Debt$2.0B

Equity Value$18.9B

Shares Outstanding99M

Price per Share$191.61

Exit Multiple Method

PV of Projected FCFs$7.9B

PV of Terminal Value$24.8B

Enterprise Value$32.7B

(-) Net Debt$2.0B

Equity Value$30.7B

Shares Outstanding99M

Price per Share$311.58

Pure Model Fair Value

$251.60

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.00%	2.50%	3.00%	3.50%	4.00%
6.70%	$315.36	$327.25	$342.36	$362.18	$389.36
7.70%	$273.63	$280.91	$289.74	$300.67	$314.56
8.70%	$241.20	$245.98	$251.60	$258.30	$266.42
9.70%	$214.86	$218.16	$221.95	$226.35	$231.53
10.70%	$192.84	$195.20	$197.87	$200.91	$204.40

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$195.85

-19.5% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 1.31

Base Case

$251.60

3.4% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 1.04

Bull Case

$313.42

28.8% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 0.89

Key Assumptions & Drivers• Healthcare Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth8.80%

Year 3 Revenue Growth7.16%

Year 5 Revenue Growth3.00%

Year 7 Revenue Growth3.00%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin17.21%

Terminal EBIT Margin20.00%

Tax Rate23.19%

Historical Capex / Rev5.93%

Terminal Capex / Rev3.50%

NWC / Revenue18.65%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 24x EV/EBITDA (Healthcare sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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