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On Apr 16, Zacks Investment Research upgraded Accuray Incorporated to a Zacks Rank #2 (Buy) from a Zacks Rank #3 (Hold).

Why the Upgrade?

The earnings estimates for this California-based developer of radiosurgery and radiation therapy systems have been revised upward following its improved fiscal 2014-second quarter results released on Jan 30.  

Accuray reported adjusted loss per share of 7 cents for the quarter, narrower than the Zacks Consensus Estimate loss of 20 cents by 65.0% and the prior-year quarter's loss by 82.5%.

Year-over-year loss narrowed primarily due to robust top-line improvement of 20% from the year-ago period. Of the total revenue, Accuray's product revenues surged 36% in the reported quarter to $45.1 million, while service revenues totaled $48.5 million, representing an increase of 9%.

This happens to be the first quarter since the acquisition of TomoTherapy when the company has achieved year-over-year revenue growth. This revenue improvement is attributable to the company's strength in order backlog, along with internal improvements related to Accuray's revenue conversion management process.

In the second quarter, Accuray's total gross profit amounted to $38.2 million, increasing 43% year over year. Gross margin of 40.8% also reflected an improvement of 660 basis points (bps). Of the total gross margin, Accuray saw an enhanced product gross margin of 44.7%, resulting from higher volume and stronger average selling prices.

The company's service revenue margin also increased by 1020 bps in the reported quarter, on account of improvement in TomoTherapy Systems reliability, which drove lower parts consumption and sales of higher margin service contracts.

Based on its encouraging performance, Accuray raised its total revenue expectation for fiscal 2014 to $340-$350 million from the previous range of $325-$345 million. The Zacks Consensus Estimate of $344 million for the fiscal year lies within the current expected revenue range of the company.

The Zacks Consensus Estimate for fiscal 2014 was revised upward by 24% to a loss of 54 cents over the last three months. However, the Zacks Consensus Estimate for fiscal 2015 was revised downward by 43% to a loss of 10 cents over the same time frame.

Other Stocks to Consider

In the medical instruments space, Delcath Systems, Inc. , Syneron Medical Ltd. and Hologic Inc. are performing well. While Delcath and Syneron sport a Zacks Rank #1 (Strong Buy), Hologic retains a Zacks Rank #2 (Buy).
 

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