On Dec 2, we retained Accuray Incorporated (ARAY) at Neutral, following its soft first-quarter fiscal 2014 results. Although the company is facing several near-term headwinds, improving greenfield product order momentum indicates that the company is showing signs of a turnaround.
Why the Retention?
On Nov 7, ARAY’s first-quarter fiscal 2014 loss of $15.5 million or 21 cents per share was narrower than the year-ago loss of $21.9 million or 31 cents per share. However, the loss was wider than the Zacks Consensus Estimate of a loss of 19 cents per share.
Revenues of this radiosurgery systems maker dropped 7% from the year-ago quarter to $76.6 million. The decline was mainly on account of sluggish revenues from product sales. The top line also missed the Zacks Consensus Estimate of $83 million.
The company’s earnings have failed to beat the Zacks Consensus Estimate in 2 out of the last 4 quarters with an average negative surprise of 13.72%. Following the earnings release, the Zacks Consensus Estimate loss per share for fiscal 2014 increased 4.4% to 71 cents and the same for fiscal 2015 went down 16 cents to 7 cents per share.
Accuray’s product revenues continue to decline due to sluggish system sales. The company remains susceptible to weak global markets and reimbursement uncertainties, and faces stiff challenges from competitors’ product offerings.
Moreover, internal manufacturing and supply-related issues delayed the launch of Accuray’s latest MultiLeaf collimator (:MLC) technology. Further delays in product launch may result in failure to achieve the desired market acceptance of its new products.
Nonetheless, we appreciate ARAY’s continued success in improving product order momentum in the fiscal first quarter, reflecting healthy adoption of new products. In the last one year, the company has launched two new revolutionary products in the market, viz. the CyberKnife M6 Series and TomoTherapy H Series Systems. Further, the company’s restructuring efforts and healthy service gross margin are also helping it to stabilize.
Other Stocks to Consider
Investors interested in the medical instruments industry may consider stocks like Natus Medical Inc. (BABY), Cynosure, Inc. (CYNO) and AngioDynamics, Inc. (ANGO). While Natus Medical and Cynosure sport a Zacks Rank #1 (Strong Buy), AngioDynamics holds a Zacks Rank #2 (Buy).