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Here's Why You Should Hold Varian Medical (VAR) Stock Now

Zacks Equity Research

Varian Medical Systems, Inc. VAR is currently gaining from a solid fiscal third-quarter show, a slew of positive developments and a raised revenue guidance. However, tariff woes from the U.S.-China trade dispute raises concern.

Shares Price Performance

Over the past year, shares of this Zacks Rank #3 (Hold) company have slipped 3.2% compared with the industry’s 3.1% decline. The stock has also underperformed the S&P 500 index’s 0.2% fall.

What’s Favoring the Stock?

Solid Fiscal Q3

Varian reported third-quarter fiscal 2019 adjusted earnings per share (EPS) of $1.32, which beat the Zacks Consensus Estimate of $1.14. Adjusted EPS surged 26.9% year over year.

The company reported revenues of $825.8 million, which also surpassed the consensus mark of $760.2 million. On a year-over-year basis, revenues rose 16.5% and 19% at constant currency.

Notably, the company continues to gain from its core Oncology Systems segment, which saw solid overseas growth, especially in EMEA and China.

Strong View

Buoyed by a solid fiscal-third quarter show, Varian raised its revenue guidance for fiscal 2019.

The company currently expects revenues within $3.18 billion to $3.21 billion, up from the previously stated $3.09 billion to $3.18 billion. This indicates a year-over-year increase of 9-10% compared with the previously projected band of 6-9%.

Adjusted operating margin is expected at 16.5% while cash flow from operations is expected within $430 million to $470 million.

Positive Developments

In recent times, Varian saw a slew of positive developments.

Last month, the company installed the cyclotron for its flagship ProBeam Compact single-room proton therapy system at the King Chulalongkorn Memorial Hospital in Bangkok, Thailand. This will boost Varian’s much coveted Proton Therapy platform.

Additionally, Varian recently announced a partnership with the International Atomic Energy Agency in a bid to enhance cancer treatment. Notably, the tie-up helped the company make the TrueBeam system available to the IAEA’s Dosimetry Laboratory in Seibersdorf, Austria. This collaboration is likely to drive Varian’s core Oncology business.

In recent times, Varian also announced an asset purchase agreement to acquire Boston Scientific’s BSX portfolio of drug-loadable microsphere and bland embolic bead products for $90 million. This will strengthen Varian’s interventional oncology segment. (Read More: Varian to Acquire Boston Scientific's Embolic Bead Products)

Deterrents

The U.S.-China trade dispute has impacted overseas sales of several MedTech manufacturers. This affected Varian Medical’s last-quarter revenues by $10 million. Operating income at the Proton Solutions unit was also affected by tariffs.

Further, the company has narrowed its adjusted EPS view for fiscal 2019. Notably, adjusted EPS is projected within $4.58 to $4.63, compared with the earlier stated range of $4.55 to $4.70.

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

Which Way Are Estimates Headed?

For the fiscal fourth quarter, the Zacks Consensus Estimate for earnings is pegged at $1.21, indicating an increase of 4.3% from the year-ago quarter’s reported figure. The same for revenues is pinned at $852.8 million, suggesting a 6.4% rise from the figure reported in the year-ago quarter.

For fiscal 2019, the Zacks Consensus Estimate for revenues is $3.20 billion, calling for a rise of 9.6% from the year ago. The same for earnings stands at $4.62, implying growth of 4.5% from the figure reported in the previous year.

Key Picks

A few better-ranked stocks in the broader medical space are DENTSPLY SIRONA XRAY and Baxter International BAX, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DENTSPLY’s long-term earnings growth rate is expected to be 11.5%.

Baxter’s long-term earnings growth rate is projected at 12.8%.

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