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Here's Why You Should Retain Accuray (ARAY) Stock for Now

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Accuray Incorporated ARAY is poised well for growth in the coming quarters, backed by its series of regulatory approvals. A solid third-quarter fiscal 2021 performance, along with the strong TomoTherapy platform, is expected to contribute further. However, stiff competition and reimbursement uncertainties persist.

Over the past year, this Zacks Rank #3 (Hold) stock has gained 111.3% compared with 16.9% growth of the industry and 42.4% rise of the S&P 500 composite.

The renowned radiation oncology company has a market capitalization of $403.9 million. Accuray projects 166.7% growth for fiscal 2022, in which it expects to maintain its strong performance. The company surpassed estimates in two of the trailing four quarters and missed the same in the other two, the average earnings surprise being 112.50%.

Let’s delve deeper.

Strong Q3 Results: Accuray’s robust third-quarter fiscal 2021 revenues buoy optimism. The company registered growth in both its reporting arms. Solid momentum across the Radixact, CyberKnife and TomoTherapy platforms also raises our optimism. Continued adoption of its latest innovations like Synchrony real-time motion tracking, and delivery adaptation on Radixact, along with its latest generation of CyberKnife S7 system, instill confidence in the stock. The recently signed cancer treatment pact with DHL Supply Chain is also encouraging.

Regulatory Approvals: We are upbeat about the slew of regulatory clearances received by Accuray over the past few months. The company, in March, received Shonin approval from the Japanese Ministry of Health, Labor and Welfare for its ClearRT helical fan-beam kVCT imaging system. The same product had earlier received the FDA’s 510(k) clearance in December 2020.

Potential in TomoTherapy Platform: We are optimistic about Accuray’s developments in its TomoTherapy platform. The company launched its precision treatment planning system, which will leverage the company’s flagship Radixact and CyberKnife system platforms. In the third quarter of fiscal 2021, the TomoTherapy platform accounted for a significant portion of revenue unit volume while representing a huge percentage of order unit volume for the period.

In January, Accuray released favorable data from a prospective, phase II trial on women with low-risk breast cancer.

Downsides

Reimbursement Uncertainties: Accuray faces reimbursement uncertainties for its products. Hospitals, physicians and clinics receive Medicare reimbursement based on the Current Procedural Technology (“CPT”) code. The inability of physicians to obtain reimbursement under the CPT codes may severely affect sales of Accuray’s products. Furthermore, reimbursement by third-party payers is often positively influenced by the existence of peer-reviewed publications of long-term safety and efficacy data, which are presently not available.

Competition: Accuray faces significant competition in the radiation oncology market, which is characterized by rapid technological changes. The company competes with key players like ViewRay, Inc. VRAY in this market.

Estimate Trend

Accuray is witnessing a negative estimate revision trend for 2021. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved 40% south to 3 cents.

The Zacks Consensus Estimate for the company’s fourth-quarter fiscal 2021 revenues is pegged at $101.7 million, suggesting a 7% rise from the year-ago quarter’s reported number.

Key Picks

A couple of better-ranked stocks from the broader medical space are Illumina, Inc. ILMN and DaVita Inc. DVA, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Illumina’s long-term earnings growth rate is estimated at 7%.

DaVita’s long-term earnings growth rate is estimated at 14.4%.

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