Sotera Health (SHC) Stock Forecast & Price Target

Sotera Health has outlined expectations for adjusted EBITDA to grow at a compound annual rate of 5%-8% over the next three years, with a projected cumulative margin expansion of 50-150 basis points by 2027. The company anticipates further adjusted EBITDA margin improvements, particularly in its Sterigenics segment, while benefiting from a mix shift towards higher-margin lab testing services within Nelson Labs, promising nearly 100 basis points of margin expansion in the current year. Additionally, with significant revenue contributions now stemming from pharmaceuticals—up to 33% from 12% prior to the 2016 acquisition of Nelson Labs—Sotera is well-positioned for continued financial growth and enhanced operational efficiency.

Sotera Health has experienced a decline in its adjusted EBITDA margin, which fell by approximately 180 basis points from 2021 to 2024, primarily due to inflationary pressures and unfavorable conditions within its Nelson Labs division. Additionally, the company faces challenges from reduced high-margin COVID-related testing volumes, a mix shift toward lower-margin advisory services, and supply chain issues leading to decreased top-line growth. Despite a projected decrease in net debt, the stock has underperformed significantly relative to the S&P 500 since its IPO, and management anticipates further negative impacts on sales performance in 2025, particularly within the advisory services segment.