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Varian Medical Stays Neutral

Zacks Equity Research

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.

Why Maintained?

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).

Read the Full Research Report on VAR
Read the Full Research Report on ANGO
Read the Full Research Report on BABY
Read the Full Research Report on CRY

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