Sotera Health (SHC) Stock Forecast & Price Target

Sotera Health is poised for a robust financial outlook, with expectations for adjusted EBITDA to grow at a compound annual rate of 5% to 8% over the next three years, leading to cumulative margin expansion of 50-150 basis points by 2027. The company’s strategic shift towards higher-margin lab testing services within its Nelson Labs segment is anticipated to contribute significantly, with nearly 100 basis points of adjusted EBITDA margin expansion projected for the current year alone. Additionally, the increasing contribution of pharmaceuticals to overall sales—growing from about 12% to roughly one-third post-acquisition of Nelson Labs—indicates a diversifying revenue base that aligns well with the company's cross-selling strategy, bolstering overall financial strength.

Sotera Health's stock outlook is negatively impacted by declining adjusted EBITDA margins, which have fallen by approximately 180 basis points from 51.7% in 2021 to 49.9% in 2024, largely due to inflation, overstaffing, and a unfavorable mix within its Nelson Labs business. The company's performance in 2025 is expected to be particularly weak, with management indicating a significant decline in advisory services related to the lack of FDA activity, negatively affecting Nelson Labs sales by around 10 percentage points. Furthermore, while organic revenue growth was robust at nearly 9.0% from 2021 to 2022, the overall financial trajectory has been pressured by customer supply chain challenges, leading to reduced top-line performance.