On Dec 10, we maintained our Neutral recommendation on Varian Medical Systems (VAR). We are disappointed about VAR's earnings and revenue misses in the fiscal 2013-fourth quarter. However, we praise the company’s regular product upgrade cycles and further penetration in under-equipped international markets that will expand sales and bookings.
On Oct 23, Varian Medical posted net earnings of $1.08 per share for the fourth quarter of fiscal 2013, which was flat compared with the prior-year quarter and missed the Zacks Consensus Estimate by 4 cents. In fact, net earnings declined 2.4% to $117.3 million from $120.2 million in the year-ago quarter.
However, net earnings for fiscal 2013 rose 2.6% to $438.2 million from $427.0 million a year ago, while it increased 5.9% to $3.98 from $3.76 on per share basis, missing Varian’s own expectations of $4.00–$4.04 per share.
Revenues edged up 1.8% year over year to $769.9 million during the quarter, falling short of the Zacks Consensus Estimate of $780 million and missing the company’s growth projection of 5% for the quarter. Revenues for fiscal 2013 grew 4.8% to $2.9 billion.
Following the release of fiscal fourth quarter results, the Zacks Consensus Estimate for fiscal 2014 fell 4.0% to $4.28 per share. The Zacks Consensus Estimate for fiscal 2015 also went down 2.6% to $4.82 over the same timeframe.
Varian is poised to increase its market share in the radiation oncology market. Its strong overseas presence is expected to enable it to leverage the under-equipped international markets.
However, the oncology business in North America is witnessing a drop in capital expenditure on account of uncertainty emanating from health care reform and anticipated changes in reimbursement. This may adversely impact its results.
Other Stocks to Consider
Some better-ranked stocks that are worth a look in the medical instruments industry include Natus Medical Inc. (BABY), CryoLife, Inc. (CRY), and AngioDynamics Inc. (ANGO). Both Natus Medical and CryoLife carry a Zacks Rank #1 (Strong Buy), but AngioDynamics carries a Zacks Rank #2 (Buy).