With a market capitalization of approximately $10.61 billion, Varian Medical Systems Inc (VAR - Free Report) has been riding high on revenue opportunity from the growing adoption of Proton Therapy and strong overseas presence in emerging countries.
However, cutthroat competition in the niche spaceis a major headwind.
For fiscal 2018, the Zacks Consensus Estimate for revenues is currently pegged at $2.85 million, reflecting an increase of 0.9% year over year. Notably, the Zacks Consensus Estimate for earnings is currently pegged at $4.48 per share, showing an increase of 24.4% year over year. The stock has a Zacks Rank #3 (Hold).
Here we take a quick look at the major factors that have been plaguing Varian Medicaland discuss the prospects that ensure near-term recovery.
Varian Medical Systems, Inc. Price and Consensus
Factors Plaguing Varian Medical
Intensifying competition is expected to increase R&D expenditures in the growing proton therapy market, which will keep margins under pressure.
Further, Varian Medical competes with large electronic companies along withsmaller and more specialized radiation therapy equipment manufacturers.Thus, cutthroat competition in the niche space is likely to raise the company’s expenditure in the near term. The oncology business in North America is witnessing a drop in capital expenditure on account of uncertainty emanating from health care reform and anticipated changes in reimbursement.
Although international sales, as percentage of revenues,areincreasing, higher demand for lower-margin products from China, India and Brazil is expected to keep margins under pressure over the next several quarters.
Why Should You Hold The Stock?
Apart from enjoying a dominant market share in conventional radiotherapy, we believe proton therapy also holds significant promise for Varian Medical. Proton therapy falls under the Particle Therapy business.
Recently, the company announced the installation of a Varian Medical ProBeam cyclotron at the proton beam therapy center at University College Hospitals London NHS Foundation Trust (UCLH) in London, England. The cyclotron is a core piece of equipment of the ProBeam proton therapy system. Its installation is a key milestone for every new proton therapy center.
Varian Medical’s ProBeam Compact proton therapy system is superior to other external beam radiotherapies in precisely locating cancerous tumors, thereby causing lesser side-effects to surrounding tissues. Proton therapy system hasthe same interface used in theTrueBeam platform.
Recently, Varian Medical has upgraded its ProBeam system software to ProBeam version 2.5 to enhance workflow at the site and provide better images generated by the system's integrated imager. The upgraded product will drive the company’s market share going forward.
In Mar 2018, Varian Medical announced the first patient treatment at the St. Petersburg Proton Therapy Center in Russia, an important step in expanding access to proton therapy around the world.
A few better-ranked stocks in the broader medical space are Genomic Health (GHDX - Free Report) , Abiomed (ABMD - Free Report) and Stryker Corporation (SYK - Free Report) .
Genomic Health has an expected earnings growth rate of 187.5% for the current quarter. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Abiomed has a projected long-term earnings growth rate of 27%. The stock sports a Zacks Rank #1.
Stryker has a projected long-term earnings growth rate of 9.7%. The stock carries a Zacks Rank #2 (Buy).
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