Reiterate Varian at Neutral - Analyst Blog
January 29 2013 - 9:30AM
Zacks
On Jan 28, we retained
Varian Medical Systems (VAR), an oncology and
X-Ray products company, at Neutral after the company beat Zacks
Consensus Estimates for revenues and earnings for the fiscal first
quarter. The results came despite a contraction in oncology net
orders for Varian outside North America.
Why the
Retention?
Varian Medical posted first-quarter
fiscal 2013 adjusted net earnings of 89 cents per share, beating
the Zacks Consensus Estimate of 86 cents per share and surpassing
the year-ago earnings of 79 cents a share. Revenues in the fiscal
first quarter increased 8% year over year to $678.4 million,
beating the Zacks Consensus Estimate of $676 million. Sale of
oncology products was strong in North America while X-Ray products
worldwide sold at a brisk pace.
Following the release of the fiscal
first quarter results on Jan 23, the Zacks Consensus Estimate for
fiscal 2013 has moved down by just a penny to $4.12 while the same
for 2014 has remained stagnant at $4.66.
Moving ahead, Varian continues to
expect revenues to moderately grow by 8% to 9% for fiscal 2013. Net
earnings for fiscal 2013 have been marginally revised in the band
of $4.08 to $4.16 (earlier $4.06 and $4.16) per share. For
second-quarter fiscal 2013, the company envisions sales to grow
roughly 5% to 6% year over year. Varian expects net earnings in the
range of 98 cents to $1.03 per share, including a restructuring
charge for the second quarter.
Varian is a leading manufacturer of
integrated radiotherapy systems for cancer treatment, and a premier
supplier of X-ray tubes for diagnostic imaging applications. The
company operates in a technology-driven environment where success
depends on the use of new technology, product development and
upgrades. In the radiation oncology market, Varian competes with
Accuray (ARAY).
The company is poised to increase
its market share in radiation oncology. It currently enjoys a
healthy demand for its coveted TrueBeam technology, which has
meaningfully contributed to its net order oncology growth. Varian’s
TrueBeam was designed to treat tumors with beams of high speed and
precision. It incorporates several technological innovations such
as patient positioning and managing his/her motion. Given its high
intensity nature, TrueBeam can dispense strong dosage over twice as
fast as that possible with earlier equipment.
Truebeam currently constitutes over
50% of Varian’s high energy accelerator orders. Since its inception
in April 2009, Varian has booked more than 690 orders for TrueBeam,
of which over 380 installations have been completed or represent
work in progress. In January 2013, Varian revealed FDA 510(k)
clearance for its Edge Radiosurgery Suite. Given the demographic
trends across the globe, this integrated system might be a
breakthrough in cancer treatment.
Moreover, Varian continues to post
decent results despite the contagion of economic problems in Europe
and sustained softness in certain end markets. It enjoys a strong
balance sheet marked by low debt and sizeable cash. The company
also periodically deploys capital to boost investor confidence via
share repurchases.
However, Varian competes with
larger players in a technology-intensive industry. Further,
uncertainties stemming from health care reform and a still weak
hospital capital spending environment across many developed
countries, especially in Europe, are significant challenges.
Other Stocks to
Consider
The stock carries a Zacks Rank #3,
which translates into a short-term Hold rating. Cantel
Medical Corp. (CMN) and Cyberonics Inc.
(CYBX) are Zacks Rank #1 (Strong Buy) stocks which are expected to
do well.
ACCURAY INC (ARAY): Free Stock Analysis Report
CANTEL MED CORP (CMN): Free Stock Analysis Report
CYBERONICS INC (CYBX): Free Stock Analysis Report
VARIAN MEDICAL (VAR): Free Stock Analysis Report
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