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We reaffirm our Neutral rating on oncology and X-Ray products company Varian Medical Systems (VAR - Free Report) .

The company posted third-quarter fiscal 2011 earnings per share from continuing operations of 83 cents, matching the Zacks Consensus Estimate and exceeding the corresponding year-ago earnings of 74 cents. Profit climbed roughly 7% year over year, benefiting from rising sales of both oncology systems and X-Ray products.

Revenues surged 12% to $649 million, beating the Zacks Consensus Estimate of $643 million. Order backlog increased 10%, led by higher demand for newer products of both Oncology Systems and X-Ray segments.

Oncology Systems’ sales climbed 12% year over year, benefiting from strong demand for the company’s TrueBeam radiotherapy and radiosurgery system. Varian has received orders for roughly 300 TrueBeam units, since its introduction in April 2010, with the bulk of the orders coming from the U.S.

Varian is a leading manufacturer of integrated radiotherapy systems for treating cancer and a premier supplier of X-ray tubes for diagnostic imaging applications. The company operates in a technology-driven environment where success depends on the use of new technology, product development and upgrades. In the radiation oncology market, Varian competes with Accuray (ARAY - Free Report) .

Varian is poised to increase its market share in radiation oncology. It is currently enjoying a healthy demand for its coveted RapidArc and TrueBeam radiotherapy technology, which is meaningfully contributing to its net order oncology growth.

Moreover, Varian enjoys a strong balance sheet marked by minimal debt and sizeable cash. The company uses a part of its healthy cash flows for share repurchases.

However, Varian competes with larger players in a technology-intensive industry. Further, uncertainties stemming from health care reform and a still weak hospital capital spending environment across many developed countries, especially in Europe, are significant challenges.

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