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Here's Why You Should Hold on to Varian (VAR) Stock for Now

Zacks Equity Research

Varian Medical Systems, Inc. VAR is likely to gain from strong fourth-quarter fiscal 2019 results and a slew of positive developments. However, the company has been experiencing weakness in its Proton Therapy revenues.

In a year’s time, shares of Varian have rallied 12.1% compared with the industry’s 11% rise. Meanwhile, the S&P 500 Index has risen 17.9%.

With a market capitalization of $11.98 billion, Varian is the world’s leading provider of radiotherapy, radiosurgery, proton therapy and brachytherapy for treating cancer and other medical conditions. The company’s earnings are anticipated to grow 8% over the next five years. For the trailing four quarters, the company has a positive earnings surprise of 1.6%, on average.

Let’s take a closer look at the factors that substantiate Varian’s Zacks Rank #3 (Hold).

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Factors to Boost Varian

In the recently-reported fourth quarter, Varian posted earnings per share (EPS) of $1.21, in line with the Zacks Consensus Estimate. Adjusted EPS rose 4.3% year over year.

The company reported revenues of $878.9 million, which surpassed the consensus mark of $853.3 million. On a year-over-year basis, revenues rose 9.6% and 12% at constant currency (cc).

Notably, Oncology revenues increased 8.5% year over year and 11% at cc, driven by an expansion of the company’s net installed base. Gross orders grew 7% from the year-ago quarter to $1.1 billion.

Apart from this, Varian has seen a slew of developments of late.

For instance, South Florida Proton Therapy Institute, an International facility has treated its first patient utilizing the Varian ProBeam Compact single-room proton therapy system. Notably, Varian’s proton therapy is one of the most advanced radiation treatments available.

Earlier this month, management at Varian announced that the company has been selected as the vendor of choice by the Michigan Oncology Quality Consortium to support its efforts to develop patient-centered quality measures for cancer care.

Last month, Australia's Icon Group made a purchase order to improve the quality of cancer care treatment across its international network. The order includes a significant suite of Varian’s cancer treatment hardware and software, including a purchase of Ethos therapy, an adaptive intelligence solution.

Varian Medical Systems, Inc. Price and Consensus

 

Varian Medical Systems, Inc. Price and Consensus
Varian Medical Systems, Inc. Price and Consensus

Varian Medical Systems, Inc. price-consensus-chart | Varian Medical Systems, Inc. Quote

What’s Deterring the Stock?

In the fiscal fourth quarter, Varian’s Proton Therapy revenues contracted 8.9%. Additionally, APAC orders declined 9% year over year owing to softness in Japan.

That’s not all. Varian faces stiff competition from large electronic companies such as Siemens and Philips as well as smaller and more specialized radiation therapy equipment manufacturers like Elekta, Accuray, Philips, Medtronic MDT and Stryker SYK.

Which Way Are Estimates Headed?

For fiscal 2020, the Zacks Consensus Estimate for revenues is pegged at $3.57 billion, indicating an improvement of 10.5% from the year-ago reported figure. For adjusted earnings, the same stands at $5.39 per share, suggesting growth of 16.4% from the year-ago reported figure.

A Stock to Consider

A better-ranked stock in the broader medical sector is Conmed Corporation CNMD, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank  (Strong Buy) stocks here.

Conmed has a long-term earnings growth rate of 17%.

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Varian Medical Systems, Inc. (VAR) : Free Stock Analysis Report
 
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