Sotera Health Co (SHC): what the price requires
At today's price, Sotera Health Co (SHC) is priced for +20.5% growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/SHC
Headline
| Field | Value |
|---|---|
| Ticker | SHC |
| Company | Sotera Health Co |
| Current price | $18.09/sh |
| Composition | Sterigenics 65% / Nordion 16% / Nelson Labs 19% |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Implied growth | 20.5% |
| Multiple paid | 25x operating income |
Solve inputs: computed at a 8.9% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~7.6pp.
How unusual the bet is: within-range
| Reference | Value |
|---|---|
| vs own history | +1.66σ |
| cohort percentile (of 112 peers) | 62 |
| sustained it ~5 years at this level | 39% |
| implied end-window share | 0% |
Valuation X-Ray
Asset, earnings-power and peer-multiple models all land far below the price; ONLY the growth-DCF reaches it. The bet is durable compounding the static frames structurally cannot price (a moat/durability premium).
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 3.49x | 4 | expensive |
| Earnings | 2.73x | 2 | expensive |
| Relative | 1.67x | 4 | expensive |
| Growth | 1.22x | 3 | expensive |
Families that justify the price: Growth Families that call it expensive: Asset, Earnings, Relative
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 7.4%); the inversion above states its own rate.
Per-Model Detail (n=13)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $4.73 | 3.82x | yes | FCF base $0.1B, growth 8% (input: historical growth), terminal g 4.0%, WACC 7.4%, 6yr projection |
| DCF Exit Multiple | Growth | $16.99 | 1.06x | yes | Exit EV/EBITDA: 278.7x / 280.7x / 282.7x (bear / base = today's held flat / bull), 6yr |
| Relative Valuation | Relative | $11.37 | 1.59x | yes | P/E 25.85x (blended: static sector reference 18x + trailing (TTM) 44x), scenarios: 21.5x / 25.9x / 30.2x (bear / base = reference held flat / bull), EV/EBITDA 26.4x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $4.43 | 4.08x | yes | BV/sh $2.16, ROE (TTM) 18.9%, ke 9.3% |
| Two-Stage Excess Return | Asset | $6.26 | 2.89x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $14.88 | 1.22x | yes | Rev $1.2B, growth 8% (input: historical growth; tapered), Terminal P/S: 3.6x / 4.4x / 5.1x (bear / base = today's held flat / bull, cap 8x) |
| Peter Lynch Fair Value | Relative | $4.92 | 3.68x | yes | EPS $0.41, growth 2% (input: historical EPS growth), PEG=22.09 (Overvalued) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $0.01 | 1809.00x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $0.21B × (1−38%) / WACC 7.4% → EPV (no growth) (excluded from median) |
| Residual Income | Asset | $6.15 | 2.94x | yes | BV $2.16 + 5yr PV of (ROE (TTM) 18.9% − Kₑ 9.3%) × BV; BV grows 8.8%/yr |
| Graham Number | Asset | $4.47 | 4.05x | yes | √(22.5 × EPS $0.41 × BVPS $2.16) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $0.01 | 1809.00x | yes | EBITDA $0.03B × sector EV/EBITDA 12.0x (excluded from median) |
| FCF Yield | Earnings | $0.01 | 1809.00x | yes | FCF $96.8M / Kₑ 9.3% — zero-growth perpetuity (excluded from median) |
| SBC-Adj FCF Yield | Earnings | $0.01 | 1809.00x | yes | SBC-adj FCF $0.06B (FCF $0.10B − SBC $0.04B) capitalized at Kₑ (excluded from median) |
| Ben Graham Formula | Earnings | $13.23 | 1.37x | yes | EPS $0.41 × (8.5 + 2×15.0%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | — | — | no | — |
| P/Sales Sector | Relative | $10.34 | 1.75x | yes | Revenue $1.19B × sector P/S 2.5x |
| PEG Fair Value | Relative | $15.38 | 1.18x | yes | EPS $0.41 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x |
| Earnings Yield | Earnings | $4.43 | 4.08x | yes | EPS $0.41 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net debt | $1.9b |
| Net debt / NOPAT (after-tax) | 10.74x |
| Net debt / operating income (pre-tax) | 6.70x |
| Share count CAGR (dilution) | 0.7% |
| Burning cash | no |
Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.
Bullet Takeaways
- Sotera Health runs a regulated, high-switching-cost sterilization and testing oligopoly (Sterigenics, Nordion, Nelson Labs) that earns a roughly 24% operating margin, a moat the $2.16 book value per share badly understates.
- The defining risks are leverage and litigation: about $1.92 billion of net debt at 6.7 times operating income, plus ongoing ethylene-oxide tort exposure that drove a $30.9 million settlement charge a year ago.
- Watch the deleveraging path and the EO litigation, where March 2026 insurance-coverage rulings shifted the landscape, against reaffirmed 2026 guidance for 5.0% to 6.5% revenue growth.
Bull Case
What the valuation models miss about Sotera Health is that the book value tells you almost nothing about the business. Book value is just $2.16 per share, which on a static asset lens makes the stock look absurdly expensive at $15.82 (June 28, 2026). But Sotera does not sell assets; it sells a mission-critical service that medical-device and pharmaceutical companies legally cannot ship without. Its Sterigenics arm sterilizes products, Nordion supplies the cobalt-60 that powers gamma sterilization, and Nelson Labs runs the testing and validation. These are regulated, embedded steps in customers' approved manufacturing processes, and switching providers means re-validating a sterilization method with the FDA. That is a moat the balance sheet cannot see.
The returns the business earns prove the point. Sotera runs a roughly 24% operating margin and a return on equity near 19% on that tiny book, which is what a service with pricing power and high switching costs looks like. The first quarter of 2026 showed it working: revenue rose 10% to $280.0 million on pricing gains and higher volumes at Sterigenics and Nordion, adjusted EBITDA reached $134.7 million, and the company swung to $26.6 million of net income from a prior-year loss. The prior-year loss was the result of a $30.9 million Illinois ethylene-oxide litigation settlement; clearing that overhang lets the underlying earnings power show through.
The litigation cloud that has weighed on the stock is also lifting at the margin. In March 2026 the courts moved on the insurance-coverage disputes, and Sterigenics agreed to withdraw certain coverage claims as the related lawsuits are dismissed. The recurring, regulated demand reasserts itself once the legal noise quiets. Against today's price, the growth-DCF lens reaches the level by crediting that durable, compounding service revenue, which is exactly the kind of moat-and-durability premium the static, asset-based methods are built to under-count.
Bear Case
The methods disagree sharply on Sotera, and the conservative ones are saying something the bull should not wave away. Three of the four families, asset value, earnings power, and peer multiples, all read the price as richly valued; only the growth-DCF lens reaches it. When the static frames cluster on expensive and a single forward-growth method carries the price, the durability of that growth is doing all the work, and the burden of proof sits with it. The earnings-power read in particular lands far below the price, because the normalized profit capitalized without growth is modest relative to the market value. The bull says the static methods miss the moat; the bear says they are flagging a price that needs years of uninterrupted compounding to be right.
The leverage is what makes that disagreement dangerous. Sotera carries about $1.92 billion of net debt against trailing operating income near $287 million, roughly 6.7 times, on a balance sheet where book equity is thin. A service business with pricing power can carry debt, but the litigation overhang sits on top of it. Even with the recent insurance-coverage rulings, the company still faces ongoing ethylene-oxide tort litigation in multiple states, and the prior-year results carried a $30.9 million settlement charge as a reminder that these costs are real and recurring. A levered balance sheet plus open-ended tort exposure is a combination that can force value transfers from equity holders to plaintiffs.
The ethylene-oxide question is also a structural risk to the core, not just a legal cost. Regulatory and community pressure on EO sterilization facilities can constrain operations or force costly facility changes, and Sterigenics is the largest segment. If the regulatory environment tightens or a facility faces restrictions, the steady volumes that the growth case depends on come under pressure. The bear case is the mirror of the bull: the same moat that lets Sotera price aggressively is concentrated in a sterilization method under legal and regulatory scrutiny, and the price already credits the durable compounding while three of four valuation lenses say it is paying ahead.
Valuation
Sotera is a case where the methods point in opposite directions, and reading the disagreement honestly is the whole exercise. The operating margin runs about 24%, and inverted, the price requires roughly 15% growth sustained alongside that high margin, an assumption the model places within the range the business can support but at a level that needs the moat to hold.
The family spread is stark. The asset-based reads sit far above the price relative to a book value of just $2.16 per share, which is meaningless for a capital-light service business and overstates the apparent expensiveness. The earnings-power and peer-multiple lenses also read the price as rich. Only the growth-DCF family reaches today's level, crediting the durable, recurring sterilization and testing revenue. The pattern, three static frames calling it expensive and one forward frame reaching the price, is the market paying for compounding the backward-looking methods structurally cannot capture. The honest read is that this is a moat-and-durability premium: the price is defensible only if the regulated, high-switching-cost service keeps growing, and the static methods give no support if it does not. The routed peer cohort here is a set of broad healthcare-services names rather than direct contract-sterilization competitors, of which there are few public pure plays, so the peer-multiple read is best treated as directional rather than precise.
Solvency is the constraint that turns the valuation debate into a real risk. Net debt near $1.92 billion against $287 million of operating income is about 6.7 times, and it sits on a thin equity base alongside ongoing ethylene-oxide tort litigation. The business generates real free cash flow, about $97 million, and cash on hand of $315.9 million provides near-term liquidity, but the deleveraging path is gradual and the litigation can demand cash at unpredictable times. What the buyer underwrites at this price is that the durable service revenue compounds as the growth lens assumes, while the leverage works down and the EO litigation stays contained, in an equity that the static methods already read as fully priced.
Catalysts
Sotera Health's first quarter of 2026 marked a profit rebound. Net revenue rose 10% to $280.0 million on pricing gains and higher volumes at Sterigenics and Nordion, adjusted EBITDA reached $134.7 million, and the company posted net income of $26.6 million against a prior-year net loss of $13.3 million. The prior-year loss had been weighed down by a $30.9 million Illinois ethylene-oxide litigation settlement, so the year-over-year swing partly reflects that charge dropping out. Adjusted EPS of $0.18 edged past consensus, and the company reaffirmed its full-year outlook of 5.0% to 6.5% revenue growth and 5.5% to 7.0% adjusted EBITDA growth on a constant-currency basis.
The litigation developments are the catalyst that matters most for the discount. In March 2026 the Seventh Circuit reversed an insurance duty-to-defend order, and in light of that and an Illinois Supreme Court ruling, Sterigenics agreed to withdraw certain coverage claims as the related lawsuits in Delaware, Los Angeles, and Cook County are dismissed. The company still faces ongoing ethylene-oxide tort litigation across multiple states, so the legal overhang is reduced rather than removed. The events to track are the cadence of any further litigation rulings and the pace of deleveraging from a starting point near 6.7 times operating income, since both bear directly on the equity sitting atop $2.14 billion of long-term debt.
Peer Cohorts (Per Segment, With Filing Citations)
Sterigenics / Nordion (reported)
- STE (STERIS plc)
- (no filing in the citation store)
- CRL (CHARLES RIVER LABORATORIES INTERNATIONAL, INC.)
- (no filing in the citation store)
Nelson Labs (reported)
- CRL (CHARLES RIVER LABORATORIES INTERNATIONAL, INC.)
- (no filing in the citation store)
- ICLR (ICON plc)
- (no filing in the citation store)
- IQV (IQVIA HOLDINGS INC.)
- (no filing in the citation store)
- MEDP (Medpace Holdings, Inc.)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.
Sources
Q1 2026 earnings, May 2026 · company disclosure, May 2026 · Q1 2026 guidance, May 2026