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Varian Medical's CTSI Buyout to Boost Oncology Services Unit

Zacks Equity Research

Varian Medical Systems, Inc. VAR recently entered into a definitive agreement to acquire Cancer Treatment Services International (“CTSI”) for $283 million. The collaboration is expected to boost Varian Medical’s core Oncology Systems business.

More on the Deal

Varian Medical expects the deal to have a 6-cent-per-share-dilutive impact on earnings on a reported basis and 3 cents on an adjusted basis. Varian Medical also expects the buyout to be accretive to earnings per share during fiscal 2021 on an adjusted basis and fiscal 2022 on a reported basis.

For investors’ notice, privately-held CTSI provides innovative and technologically advanced treatment solutions through an IT-based model that allows integration and centralization of core services. The company operates at its flagship cancer hospital in Hyderabad, India.

Guidance Updated

Given the pro-forma impact of the CTSI acquisition and the gross impact from the recently-announced incremental tariffs, Varian Medical updated its fiscal 2019 guidance.

The company continues to expect fiscal 2019 revenues within $3.09 billion to $3.18 billion, suggesting growth of 6-9%.

Adjusted earnings per share are anticipated between $4.60 and $4.75, compared with the previously stated band of $4.55-$4.70.

Adjusted operating margin is expected between 17% and 18% compared with 16.5-17.5%, provided earlier.

Management at Varian Medical expects cash flow from operations to fall to $460-$510 million from the earlier stated range of $440-$490 million.

Oncology Systems Arm at a Glance

Oncology Systems is Varian Medical’s largest operating business segment, providing products for radiation treatment of cancer with conventional radiation therapy, intensity modulated radiation therapy, image guided radiation therapy and others.

In the last reported quarter, the segment accounted for 95.8% of net sales, growing 7% worldwide.

Price Performance

Over the past year, the Zacks Rank #3 (Hold) stock has rallied 9.8% against the industry’s 2.8% decline. The current level also compares favorably with the S&P 500 index’s 4% rally.

Key Picks

A few better-ranked stocks in the broader medical space are DENTSPLY SIRONA XRAY, Masimo Corporation MASI ad CONMED Corporation CNMD, 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 at 11.5%.

Masimo’s long-term earnings growth rate is projected at 16.1%.

CONMED’s long-term earnings growth rate is estimated at 13.3%.

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Varian Medical Systems, Inc. (VAR) : Free Stock Analysis Report
Masimo Corporation (MASI) : Free Stock Analysis Report
DENTSPLY SIRONA Inc. (XRAY) : Free Stock Analysis Report
CONMED Corporation (CNMD) : Free Stock Analysis Report
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