Varian Medical Systems
) is slated to report second-quarter fiscal 2012 results on
Wednesday, April 25. The current Zacks Consensus Estimate for the
second quarter is 96 cents, representing an estimated
year-over-year growth of 11.73%.
First Quarter Recap
Varian reported first quarter earnings per share from continuing
operations of 79 cents, beating the Zacks Consensus Estimate of 76
cents but missing the year-ago earnings of 80 cents per share. Net
earnings for the quarter slipped 6.5% year over year to $90.2
million (or 79 cents a share).
Varian's top line witnessed an 8% increase to $625 million in
the quarter, but trailed the Zacks Consensus Estimate of $633
million. Order backlog increased 14% to $2.5 billion at the end of
the reported quarter.
Oncology Systems' revenues grew 8% year over year to $488
million. Varian benefited from strong demand for its TrueBeam
system. Net orders went up 6% to $485 million as an 11% decline in
North America was more than offset by 22% growth in international
markets. Net orders from overseas markets constituted 60% of net
orders received during the first quarter.
Varian's X-Ray Products business had a lukewarm quarter with
revenues moving up just 1% year over year to $113 million. Sales in
the "Other" category spiked 56.3% year over year to $25 million.
Sales were driven by revenues from the setting up of the Scripps
Estimate Revision Trend
Among the 11 analysts covering the stock, there were no estimate
revisions, for the current quarter, over the past week. There was
one instance of revision, in the downward direction, over the past
Of the 11 analysts, there were again no upward estimate
revisions, for fiscal 2012, over the past 7 and 30 days. There was
only 1 instance of a downward revision, for fiscal 2012, over the
past month. The current Zacks Consensus Estimate for fiscal year
2012 is $3.95, reflecting an estimated 14.85% year-over-year
Given the relative shortage of estimate revisions, the magnitude
of revision for the second quarter has been static over the last
week and month. The consensus estimate for fiscal 2012 has remained
stagnant over the past week and dipped by a penny in the past
Varian has produced positive surprises in two of the previous
four quarters while it met or trailed estimates in the remaining
two quarters. We expect that a similar mixed trend might continue.
The company produced an average earnings surprise of 1.02% over the
prior four quarters, meaning that it beat the Zacks Consensus
Estimate by that measure.
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
Varian is poised to increase its market share in radiation
oncology. It is currently enjoying a healthy demand for its coveted
TrueBeam 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. We currently have a Neutral long-term
rating on Varian supported by a short-term Zacks #3 Rank
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