Sotera Health Co

We have been following Sotera Health for several years. The business is exceptional: a sterilization duopoly with Sterigenics and Steris combined controlling an estimated 70% of the sterilization market. Sotera's Sterigenics business boasts 50% EBITDA margins, mission-critical regulated services, and cobalt-60 production that is nearly impossible to replicate. In early 2026, Warburg sold its last share. Combined with a valuation that was cheap given the quality of the business model, we thought it made sense to purchase the stock. Management outlined a 2025-2027 plan targeting 5%-7% organic revenue growth and 5%-8% adjusted EBITDA growth, with at least 50bps of EBITDA margin expansion annually. We expect a focused management team to regain share.

We have been following Sotera Health for several years. The business is exceptional: a sterilization duopoly with Sterigenics and Steris combined controlling an estimated 70% of the sterilization market. Sotera’s Sterigenics business boasts 50% EBITDA margins, mission-critical regulated services, and cobalt-60 production that is nearly impossible to replicate. In early 2026, Warburg sold its last share. Combined with a valuation that was cheap given the quality of the business model, we thought it made sense to purchase the stock. We see 50% near-term upside; however, we are planning to own this durable business for many years. Post-litigation, we would label this as a compounder.

Sotera Health Company (SHC) has shown positive Q1 results, particularly in its Sterigenics segment, which is returning to high single-digit organic growth following the COVID destocking. Recent legal developments have also been favorable, with a judge dismissing five lawsuits, suggesting that the remaining cases may also be rejected, potentially limiting current liabilities to under $50MM. With the overhang from former private equity owners now removed, SHC is well-positioned to align with peers, and I estimate it can earn ~$1.30 in 2028, which at a 25x P/E would imply a valuation significantly higher than its current share price.

Sotera Health (SHC) has been experiencing an atypical downturn in its end markets due to excessive stocking during COVID and subsequent destocking. However, I believe in SHC's dominant position and long-term healthcare trends. Management's recent tone indicates a recovery, with SHC reporting 6% volume growth in Q2, which confirms my thesis. Historically, SHC grew volumes 4-7% from 2019 through 2022 and traded at 18-22x EBITDA. If SHC can return to its historical EBITDA growth of ~10%, it will be viewed as a consistent compounder, warranting a high multiple. My estimate suggests a potential price of $35 versus the current $16.