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Varian Medical (VAR) Q4 Earnings: What's in the Cards?

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Varian Medical Systems Inc. is set to report results for the fourth quarter of fiscal 2016, after the closing bell.

Last quarter, the company reported earnings of $1.22 per share, which beat the Zacks Consensus Estimate by a nickel. Notably, the figure improved 6.1% on a year-over-year basis.

We note that on an average, Varian Medical posted a positive earnings surprise of 2.21% over the last four quarters. Meanwhile, a glimpse at the current market trends reveals that Varian Medical represents a solid one-year return of 25.9%, way better than the S&P 500’s 3.1% over the same time frame

Let’s see how things are shaping up prior to this announcement.

VARIAN MEDICAL Price and EPS Surprise

 

VARIAN MEDICAL Price and EPS Surprise | VARIAN MEDICAL Quote

Factors at Play

We are particularly upbeat about Varian’s oncology business prospects. Notably, the company has been addressing both the tier 1 and mid-tier markets through its Edge, Truebeam and VitalBeam products and has also been winning international contracts in the oncology space.

Additionally, the launch of ‘360-Oncology care management platform’ and the 510(k) clearance from the U.S. FDA to market Nexus DR (high resolution X-ray imaging system) are key positives. Significant growth opportunities in the regions of China, Thailand, Vietnam, Indonesia, Japan, Africa and the Middle East also hold considerable promise.

On the flip side, intensifying local competition is a primary headwind. In the last reported quarter, Varian Medical announced the establishment of Varex Imaging Corporation through the separation of its Imaging Components business into a new, independent, publicly traded company via a tax-free distribution to Variant stockholders. We believe this spin-off will be an overhang on the stock in the coming quarters.

Earnings Whispers

Our proven model does not conclusively show that Varian Medical is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Varian Medical currently has an Earnings ESP of -0.74%. This is because the Most Accurate estimate is pegged at $1.34 while the Zacks Consensus Estimate is $1.35.

Zacks Rank: Varian Medical carries a Zacks Rank #2 which increases the predictive power of ESP. However, the company’s -0.74% ESP makes surprise prediction difficult.

Please note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revision.

Stocks to Consider

Here are some companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Ariad Pharmaceuticals Inc. , with an Earnings ESP of +5.26% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here. Additionally, the stock represents a stellar one-year return of 52.7%.

Exelixis Inc. (EXEL - Free Report) , with an Earnings ESP of +7.69% and a Zacks Rank #1. Notably, the company has a stupendous one-year return of 99.7%.

Glaukos Corporation (GKOS - Free Report) has an Earnings ESP of +200.00% and a Zacks Rank #1. We note that the company represents an impressive one-year return of 58.83%.

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