Earnings Preview: Varian Medical - Analyst Blog

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Varian Medical Systems ( VAR ) is slated to report fiscal third-quarter 2012 results on Wednesday, April 25. The current Zacks Consensus Estimate for the third quarter is 93 cents, representing an estimated year-over-year increase of 12.3%.

Second Quarter Recap

Varian reported second quarter earnings per share from continuing operations of 96 cents, matching the Zacks Consensus Estimate while surpassing the corresponding year-ago earnings of 86 cents. Net earnings for the quarter rose 4.6% year over year to $107.8 million (or 94 cents a share).

Varian's top line witnessed an 11% increase to $720 million in the quarter and beat the Zacks Consensus Estimate of $700 million. Order backlog increased 18% to $2.7 billion at the end of the reported quarter. Growth was led by increase in demand for newer products of both Oncology Systems and X-Ray segments.

Oncology Systems' revenues grew 11% year over year to $565 million. Varian benefited from strong demand for its TrueBeam system.

Varian's X-Ray Products business had a moderate quarter with revenues moving up 4% year over year to $123 million. Sales in the "Other" category spiked 39.1% year over year to $32 million.

Estimate Revision Trend

Agreement

Among the 11 analysts covering the stock, there were no estimate revisions, for the current quarter, over the past week. There was one estimate revision (in the downward direction), for the current quarter, over the prior month.  

There were no estimate revisions (among 11 analysts), for the current fiscal year, over the preceding week. There was one upward revision and two cases of downward revision, for the current fiscal year, over the past month.

The current Zacks Consensus Estimate for fiscal year 2012 is $3.79, reflecting an estimated 10.28% year-over-year growth.  

Magnitude

Given the relative shortage of estimate revisions, the magnitude of revision for the fiscal third quarter has been static over the last week and month. Estimates for fiscal 2012 have remained stagnant over the past week and dipped by a penny in the past month.

Varian has produced a positive surprise in one of the previous four quarters while it trailed estimates in another quarter. We expect that a similar mixed trend might continue. The company produced an average earnings surprise of 0.95% over the prior four quarters, meaning that it beat the Zacks Consensus Estimate by that measure.

Our Take

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 ).

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 (Hold).


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: ARAY , VAR

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