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Varian to Acquire PerkinElmer's Medical Imaging Business
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Palo Alto, CA-based Varian Medical Systems, Inc. , a leading manufacturer of medical devices and software for treating cancer, recently announced an agreement to take over the Medical Imaging business of Waltham, MA-based PerkinElmer, Inc. for $276 million.
The buyout will be an addition to the Varian Imaging Components business, which is scheduled to become an independent public organization -- Varex Imaging Company -- by Jan 2017. The deal is expected to close after the separation of Varex from Varian.
Since the announcement of the news, Varian witnessed 0.8% uptick in its share price, to close at $91.01 on Dec 23. Meanwhile, over the last six months, the stock represents a solid return of almost 14.9%, comparing favorably with the Zacks categorized Medical Instruments sub-industry’s return of roughly 0.24%.
Furthermore, year to date, shares of the company rallied 12.6%, much better than the S&P 500’s return of 8.5% over the same time frame. Currently, the stock promises an earnings yield of 5.5% compared to the industry’s negative yield of 4.3%.
Getting back to the deal, PerkinElmer is a leading provider of scientific instruments, consumables, and services to pharmaceutical, biomedical, environmental testing, chemical, and general industrial markets worldwide and has a Zaks Rank #4 (Sell). Notably, the buyout is expected to be immediately accretive to Varex’ earnings, following the closure. Meanwhile, Varex would finance the buyout by expanding its bank credit facilities to approximately $600 million.
Per management, the latest acquisition of PerkinElmer’s imaging business is a ‘natural fit’ for Varex. Additionally, the takeover would fortify the company’s foothold in the industrial imaging space by adding a highly exclusive digital imaging technology.
We are concerned about the unfavorable estimate revision trend for the stock as three estimates moved south in the last two months. Notably, the current year estimates for the stock dropped by 4 cents to $4.93 per share over the same time frame.
On a brighter note, one estimate moved north in the last one month. Additionally, a long-term expected earnings growth rate of 15% instills investor confidence on the stock. We are also upbeat on Varian’s compelling fundamentals both in terms of revenues and adjusted earnings, multiplying at a CAGR of 3.4% and 4.1%, respectively, over the last four years.
Our Take
Considering the bountiful opportunities for diagnostic imaging in the global space, the recent development is a significant propeller for long-term growth of the stock. In this regard, a research report by the Markets And Markets reveals that niche markets are expected to reach a worth of $33.42 billion globally by 2020, multiplying at a CAGR of 6.2%.
Meanwhile, a glimpse on the recent stock performance of PerkinElmer reveals that over the past six months, PerkinElmer has underperformed the broader industry trend in terms of price movement. We believe the latest divestiture will help PerkinElmer rise against the unfavorable trends and better focus on its higher priority areas.
Varex is a leading innovator, designer and manufacturer of X-ray imaging components. In the last reported quarter, the imaging components revenues of Varian were $166 million (18.2% of net revenues), up 7% from the year-ago period. Gross orders in the segment totaled $168 million, up 2% from the year-ago period. Therefore, we believe the latest development would further boost Varian’s imaging components business segment.
Addus HomeCare has a long-term expected earnings growth rate of approximately 15%. Notably, the stock represents an impressive one-year return of 51.2%.
IDEXX Laboratories has an expected earnings growth of almost 15%. The company posted a promising year-to-date return of almost 64.4%.
Zacks' Top 10 Stocks for 2017
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Varian to Acquire PerkinElmer's Medical Imaging Business
Palo Alto, CA-based Varian Medical Systems, Inc. , a leading manufacturer of medical devices and software for treating cancer, recently announced an agreement to take over the Medical Imaging business of Waltham, MA-based PerkinElmer, Inc. for $276 million.
The buyout will be an addition to the Varian Imaging Components business, which is scheduled to become an independent public organization -- Varex Imaging Company -- by Jan 2017. The deal is expected to close after the separation of Varex from Varian.
Since the announcement of the news, Varian witnessed 0.8% uptick in its share price, to close at $91.01 on Dec 23. Meanwhile, over the last six months, the stock represents a solid return of almost 14.9%, comparing favorably with the Zacks categorized Medical Instruments sub-industry’s return of roughly 0.24%.
Furthermore, year to date, shares of the company rallied 12.6%, much better than the S&P 500’s return of 8.5% over the same time frame. Currently, the stock promises an earnings yield of 5.5% compared to the industry’s negative yield of 4.3%.
Getting back to the deal, PerkinElmer is a leading provider of scientific instruments, consumables, and services to pharmaceutical, biomedical, environmental testing, chemical, and general industrial markets worldwide and has a Zaks Rank #4 (Sell). Notably, the buyout is expected to be immediately accretive to Varex’ earnings, following the closure. Meanwhile, Varex would finance the buyout by expanding its bank credit facilities to approximately $600 million.
Per management, the latest acquisition of PerkinElmer’s imaging business is a ‘natural fit’ for Varex. Additionally, the takeover would fortify the company’s foothold in the industrial imaging space by adding a highly exclusive digital imaging technology.
We are concerned about the unfavorable estimate revision trend for the stock as three estimates moved south in the last two months. Notably, the current year estimates for the stock dropped by 4 cents to $4.93 per share over the same time frame.
VARIAN MEDICAL Price
VARIAN MEDICAL Price | VARIAN MEDICAL Quote
On a brighter note, one estimate moved north in the last one month. Additionally, a long-term expected earnings growth rate of 15% instills investor confidence on the stock. We are also upbeat on Varian’s compelling fundamentals both in terms of revenues and adjusted earnings, multiplying at a CAGR of 3.4% and 4.1%, respectively, over the last four years.
Our Take
Considering the bountiful opportunities for diagnostic imaging in the global space, the recent development is a significant propeller for long-term growth of the stock. In this regard, a research report by the Markets And Markets reveals that niche markets are expected to reach a worth of $33.42 billion globally by 2020, multiplying at a CAGR of 6.2%.
Meanwhile, a glimpse on the recent stock performance of PerkinElmer reveals that over the past six months, PerkinElmer has underperformed the broader industry trend in terms of price movement. We believe the latest divestiture will help PerkinElmer rise against the unfavorable trends and better focus on its higher priority areas.
Varex is a leading innovator, designer and manufacturer of X-ray imaging components. In the last reported quarter, the imaging components revenues of Varian were $166 million (18.2% of net revenues), up 7% from the year-ago period. Gross orders in the segment totaled $168 million, up 2% from the year-ago period. Therefore, we believe the latest development would further boost Varian’s imaging components business segment.
Zacks Rank & Key Picks
Currently, Varian has a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical sector include Addus HomeCare Corporation (ADUS - Free Report) and IDEXX Laboratories, Inc. (IDXX - Free Report) . Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Addus HomeCare has a long-term expected earnings growth rate of approximately 15%. Notably, the stock represents an impressive one-year return of 51.2%.
IDEXX Laboratories has an expected earnings growth of almost 15%. The company posted a promising year-to-date return of almost 64.4%.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>