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Here's Why You Should Retain Accuray in Your Portfolio

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Accuray, Inc. ARAY is gaining on progress with its suite of software upgrades and acquisitions.  However, a competitive environment has been offsetting the positives to some extent.

The company, with a market capitalization of $160.1 million, is the leading designer, developer and seller of radiosurgery and radiation therapy systems for the treatment of tumors. The company anticipates earnings improvement of 150% for the fourth quarter of fiscal 2020. This Zacks Rank #3 (Hold) company has a trailing four-quarter positive earnings surprise of 3.2%, on average.

In the past three months, the stock has lost 51.6% compared with 7.2% decline of its industry.

Let’s delve deeper into the factors working in favor of the company.

Suite of Software Upgrades: A series of software upgrades have been propelling growth for Accuray.

Recently, the company launched an imaging software for Radixact. Per management, this software offers significant improvement in soft tissue resolution with up to 50% lesser image noise than the previous version. Another important development program for Radixact System is the launch of intra-fraction motion tracking and correction capability. It is encouraging to note that Accuray recently received FDA approval for its 510(k)-application motion synchronization on the Radixact treatment system.

 

Acquisitions: The acquisitions of TomoTherapy and Morphormics have helped Accuray expand product offerings and capabilities. The collaboration with Christie InnoMed will help the company’s products gain better visibility in Canada.

The partnerships with Premier and Amerinet are expected to help the company gain significant penetration in hospitals and oncology centers. Further, these will aid in expanding the company’s GPO (Group Purchasing Organization) strategic accounts contract portfolio. Accuray’s strategy of pursuing partnerships with GPOs will drive customer base, thereby improving top-line growth in the long run.

However, there is a concerning factor marring growth.

Cutthroat Competition in Niche Markets: Accuray is exposed to stiff competition in the radiation oncology market, which is characterized by rapid technological changes.

The company competes with Varian Medical, Elekta AB, Mitsubishi Heavy Industries, ViewRay and BrainLAB AG in this market. The CyberKnife System faces stiff challenge from Varian’s Trilogy system, while TomoTherapy systems are facing competitive threat from Varian’s RapidArc technology and the TrueBeam systems.

Estimates Trend

Over the past 60 days, the Zacks Consensus Estimate for the company’s fiscal 2020 earnings has declined 33.3% to 2 cents.

The Zacks Consensus Estimate for its third-quarter fiscal 2020 revenues is pegged at $102.5 million, suggesting a 0.7% fall from the year-ago reported number.

Key Picks

Some better-ranked stocks from the broader medical space are ResMed Inc. RMD, DexCom DXCM and Surmodics SRDX.

ResMed has a projected long-term earnings growth rate of 12%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DexCom’s long-term earnings growth rate is estimated at 36.7%. The company presently carries a Zacks Rank #2.

Surmodics’ long-term earnings growth rate is estimated at 10%. It currently carries a Zacks Rank #2.

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