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Varian Rides on Oncology and Proton Therapy Businesses

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On Jun 27, we issued an updated research report on Palo Alto, CA-based Varian Medical Systems Inc. . The company is the world’s leading provider of radiotherapy, radiosurgery, proton therapy and brachytherapy for treating cancer and other medical conditions.

Over the last three months this Zacks Rank #2 (Buy) stock outperformed the Zacks categorized Medical Instruments sub-industry in terms of price performance. The company returned 12.63%, comparing favorably with the sub-industry’s gain of almost 8.07%. Also, the current return is higher than the S&P 500’s gain of 4.95% over the same time frame.

Looking forward, Varian Medical's oncology and Proton therapy business' growth prospects remain impressive. The company is addressing both the tier 1 and mid-tier markets through its Edge, Truebeam and VitalBeam, Halcyon products. The company is winning contracts, not only in the Americas but also in the emerging international markets, which is a huge positive. We believe that China and Africa present significant top-line growth opportunity in the near term. The company is opening up new offices in Africa and the Middle East, which will open up growth opportunities in the region.

Varian Medical operates in a technology-driven environment where success depends on innovation and frequent product updates. The company has been successful on the R&D front as evident from year-over-year expansion in its top line. The company has approximately $1 billion revenue opportunity from its various Oncology and Imaging Component products over the next five years.  The varied offerings include TrueBeam and Edge platforms, InSightive Analytics, Qumulate QA and RapidPlan knowledge-based treatment planning. We believe that Varian Medical’s innovative product pipeline will continue to drive overall growth over the long term.

Apart from enjoying a dominant market share in conventional radiotherapy, we believe proton therapy also holds significant promise for Varian Medical. This is because ProBeam Compact proton therapy system is superior to other external beam radiotherapies in precisely locating cancerous tumors and causes lesser side-effects to surrounding tissues. Proton therapy system uses the same interface used by the company in its TrueBeam platform.

Finally the company’s strong overseas presence is expected to enable it to leverage this opportunity in emerging markets. In line with growing demand for cancer treatment in overseas markets, Varian Medical’s sales, in Europe, Africa and particularly Asia, are growing at a faster rate than in the domestic market.

Other stocks worth considering in the broader medical sector include Inogen Inc. (INGN - Free Report) , CryoLife, Inc. and Luminex Corporation . Notably, Inogen and Luminex sport a Zacks Rank #1 (Strong Buy), while CryoLife carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Inogen has a long-term expected earnings growth rate of 17.50%. Notably, the stock represents an impressive one-year return of 99.5%.

Luminex has a long-term expected earnings growth rate of 16.25%. Additionally, the stock represents an impressive one-year return of 20.3%.

CryoLife represents a strong return of 70.3% over the last one year. The stock posted a positive earnings surprise of 80% in the last reported quarter.

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