Sotera Health Trades At Deep Discount Despite Best-In-Class Margins: Analyst

Sotera Health Company (NYSE:SHC) is drawing renewed investor attention as easing litigation risks and improving free cash flow sharpen the market’s focus on its integrated sterilization platform, sticky customer base, and margin-rich business model, setting the stage for a potential valuation reset as earnings visibility improves. William Blair Initiates Coverage William Blair initiated coverage on Sotera Health, a provider of sterilization solutions, lab testing, and advisory services. William Blair said that each of Sotera’s three businesses is a leader in its respective market, but the company’s primary advantage is the integration of its sterilization service offerings, its Co-60 supply capabilities, and the broad offerings of its lab business. Also Read: Sotera Health ‘Is Uniquely Insulated From Potential Tariff Policy,’ Goldman Sachs Says Analyst Max Smock on Thursday wrote that Sotera’s wide competitive moat and high switching costs support an attractive and differentiated financial profile characterized by sticky customer relationships, significant recurring revenue, meaningful pricing power (3%-4% annually), and best-in-class margins (adjusted EBITDA margin above 50%). There are no great comps for Sotera, as the only significant competitor to its core Sterigenics business, Steris Plc’s (NYSE:STE) Applied Sterilization Technologies business, accounts for less than 20% of Steris’s total revenue. Valuation Discount Despite its similar outlook for the next few years, Sotera is trading at a meaningful discount to peers on both adjusted EBITDA and adjusted EPS, even though William Blair sees the potential for meaningful upside to their EPS estimates over time as improving free cash flow drives significant reductions in interest expenses and taxes. William Blair initiated with an Outperform rating. Sotera trades at 10.7x William Blair’s 2026 adjusted EBITDA estimate, roughly five turns below peers and four turns below Steris, its closest competitor. Re-Rating Potential As Legal Overhang Clears As ethylene oxide litigation risks continue to ease, the analyst expects investors to better recognize Sotera’s durable competitive position, strong financial profile, and earnings upside driven by improving free cash flow. By 2027, William Blair says the stock can re-rate toward its long-term average forward EBITDA multiple of 12.6x, implying approximately 45% upside over the next two years based on their 2028 adjusted EBITDA estimate. SHC Price Action: Sotera Health shares were up 1.58% at $17.07 at the time of publication on Thursday. The stock is approaching its 52-week high of $17.78, according to Benzinga Pro data. Read Next: Obesity Drugs Like GLP-1 Are Impacting Alcohol Consumption, Darden Flags Photo by T. Schneider via Shutterstock