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Accuray (ARAY) Grapples with Multiple Issues: Dump Now?

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On Sep 23, we issued an updated research report on Sunnyvale, CA–based Accuray Inc. (ARAY - Free Report) , a leading developer and designer of radiosurgery and radiation therapy systems for the treatment of tumors.

Accuray witnessed low product revenues in the fourth quarter of 2016, down 15.2% year over year. In fact, a dismal performance by the product segment caused a drag on total revenues that deteriorated 6.7% on a year-over-year basis. Also, adjusted loss was 9 cents per share, wider than the Zacks Consensus Estimate.

Additionally, unsatisfactory performance by the MLC-equipped CyberKnife and the Tomotherapy systems in Japan and Asia Pacific was a headwind. Unfavorable product mix and more replacement sales to the CyberKnife’s existing customer base (as the result of MLC availability) caused the drag. Moreover, one-time employee severance related expenses and other one-time part costs dented the service margin massively in the last quarter.

Accuray’s top line is highly dependent on CyberKnife and TomoTherapy systems sales. However, both the systems require high capital expenditures which act as a deterrent for healthcare providers.

Owing to the above-mentioned factors, the Zacks Consensus Estimate for full-year 2017 loss widened from a penny to 14 cents per share over the last 30 days. For full-year 2018, earnings estimates dropped by 3 cents to 14 cents over the same time frame.

However, on the brighter side, we are particularly upbeat about the company’s extensive product portfolio, growing customer base (especially in EIMEA region) and international expansion initiatives that are poised to drive growth. Moreover, the receipt of 510(k) FDA approval for the Radixact Treatment delivery platform is likely to boost product revenues over the long haul.

Zacks Rank & Key Picks

Accuray currently carries a Zacks Rank #4 (Sell). Better-ranked stocks in the broader medical sector include CryoLife Inc. (CRY - Free Report) , IDEXX Laboratories Inc. (IDXX - Free Report) and Masimo Corporation (MASI - Free Report) . All the companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stock

CryoLife recorded an impressive year-to-date return of 65.3%, better than the S&P 500’s 5% over the same time frame. In fact, the company posted positive earnings surprises in the last four quarters, the average being 502.50%.

IDEXX represents a strong year-to-date return of 52.1%. The company recorded a streak of positive earnings surprises over the last four quarters, at an average of 12.7%.

Masimo has an impressive long-term expected earnings growth rate of 15% and a year-to-date return of 42.5%.

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