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Sector Wrap: Diagnostic makers face headwinds

WASHINGTON (AP) -- Shares of medical diagnostics companies were mixed in trading Friday as an analyst warned that market conditions could challenge some companies in the industry.

Citi analyst Amit Bhalla noted that the first quarter presented several challenges for makers of medical diagnostics and research equipment, including fewer selling days and government spending cutbacks. These factors and others "may have an impact on companies which are less diversified or have fewer operating levers," Bhalla states in a note to investors.

Spending for government and academic laboratories is under pressure from sweeping cuts in federal spending, dubbed sequestration, which went into effect March 1. Public and private health systems in the U.S. and abroad are also reducing repayments for medical tests and services.

He downgraded shares of Varian Medical Systems Inc. to "sell" noting that belt tightening measures by hospitals and insurers would provide little growth for the company's radiation oncology equipment.

Bhalla said he prefers Thermo Fisher Scientific Inc., which makes equipment and tests used in medical research, noting the company's "appropriately conservative guidance."

Bhalla also recommends CareFusion, which specializes in drug infusion and respiratory equipment. Bhalla says the company has growth opportunities in emerging markets that should bolster results in the long-term. Both companies have "buy" ratings from the analyst.

Varian Medical Systems Inc. rose 72 cents, or 1 percent, to close at $67.29. Shares of Thermo Fisher Scientific Inc. fell 5 cents to close at $80.03. Shares of CareFusion Corp. rose 35 cents, or 1 percent, to $34.55.