Bull of the Day: Accuray (ARAY)

Zacks

Accuray (ARAY) has posted two consecutive massive beats on the top line and the bottom line as well. Today, ARAY is a Zacks Rank #1 (Strong Buy), and it is the Bull of the Day.

Powerful Earnings

Aggressive growth investors appreciate beats. They love them on the bottom line, but they really want to see them on top too. The last two beats delivered by ARAY have been just that.

With a strong backlog, investors may be looking for a third big beat when the company reports again in late August.

Company Description

Accuray is a radiation oncology company that develops, manufactures and sells precise, innovative treatment solutions that set the standard of care with the aim of helping patients. The Company's technologies deliver a full range of radiation therapy and radiosurgery treatments.

Most Recent Quarter

ARAY reported a strong 1Q14 beating the Zacks Consensus Estimate by $0.10 in posting a 63% positive earnings surprise. The company reported revenues of $97M when the street was calling for $82M in the quarter. The $15M top line beat translated into a 18% revenue surprise.

The stock moved lower by 8.9% in the session following the earnings announcement. The company issued upside guidance in that release. The company noted that they see revenue of $340M-$350M for FY14, but that was moved higher to $355M-$365M when the revenue consensus was calling for $346M.

Prior To That Beat

Prior to the most recent beat, ARAY also produced a huge beat. The company posted a loss of seven cents in the quarter, but that was $0.13 better than the Zacks Consensus Estimate of a loss of $0.20. That translates to a positive earnings surprise of 65%.

The beat on top was also very impressive. The company had revenue of $94M when analysts were calling for $81M. The beat of $12M translates to a 15% positive top line surprise. The company also increased revenue guidance for FY14.

As a result of the big beat and guide higher, the stock blistered higher by 19% in the session following the release.

ARAY Sees Estimates Moving Higher

The Zacks Consensus Estimate for 2014 for ARAY has been increasing all year. Starting at a loss of $0.71 in December of 2013, analysts raised their estimates to a loss of $0.54 which was then moved higher to a loss of $0.46 in April and then moved to a loss of $0.40 in May. That is where the Zacks Consensus Estimate currently stands.

The 2015 Zacks Consensus Estimate has also moved in the right direction this year. The estimate was calling for a loss of $0.10 but has since been bumped up to a loss of $0.03.

Valuation

The valuation for ARAY is not that easy to discuss as the company is not projected to make money in 2014 or 2015. That kills the trailing PE and forward PE measures that we would normally look to. The price to book multiple of 6.5x is just under double the 3.6x industry average. The price to sales multiple of 1.8x is just a little over the 1.6x industry average.

The Chart

The price and consensus chart is a very helpful tool developed by Zacks. It shows how the earnings estimates help guide the stock, so as estimates move higher, the stock price generally follows along. ARAY as a Zacks Rank #1 (Strong Buy) is no exception to that idea. The recent move lower was not followed up with lower earnings estimates, so there is a good chance for the stock to recover to recent highs.

Follow Brian Bolan on twitter at @BBolan1

Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.


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