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Varian Medical Systems Inc.

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Varian posted a disappointing first quarter of fiscal 2017, missing the Zacks Consensus Estimate on both the counts. The company has recently completed the separation of its Imaging Components Business, which is now established as Varex Imaging Corporation. Over the past three months,Varian underperformed the broader industry with respect to price performance. Of the major concerns, increasing local competition is a primary headwind. Varian is a leading operator in the proton therapy market, where it faces competition from bigwigs like Hitachi, Ion Beam Applications and more. Intensifying competition is expected to increase R&D expenditures in the nascent proton therapy market, which will keep margins under pressure. Moreover, the Imaging Components’ business spin-off will remain an overhang on the stock, at least in the near term. Of the positives, we are upbeat about Varian Medical’s takeover of Medical Imaging business of PerkinElmer.

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