Oncology and X-Ray products company
Varian Medical Systems
) continues to make strides in the international market. With the
installation of its Clinac DMX equipment at The Nairobi Hospital
in Kenya, the company has made headway in the country as this
marks the onset of radiotherapy treatments for local cancer
This presents an opportunity for Varian to venture into
underpenetrated east and central Africa. According to World
Health Organization (WHO) statistics, the age-standardized
mortality rate by cancer (per 100,000 population) was 139 for
Kenya compared with 144 for WHO African region (in 2002). Given
the demographic trends and rising health care expenditure in
Kenya, the country will have high growth potential for Varian's
According to the International Agency for Research on Cancer of
the WHO, annual cancer rates around the world are projected to
increase by 50% to 15 million new cases by the year 2020. The
expansion of Varian's offshore base should help the company
address the growing demand for radiology equipment in the
under-equipped emerging markets.
We note that Varian has been working on expanding its
international presence. The company recently gained clearance in
the Chinese market for its Unique systems. Varian also set up a
subsidiary company in South Korea, Varian Medical Systems. The
new entity will gradually don the role of a domestic base for
Varian's strategic business units.
Varian is poised to increase its market share in radiation
oncology. It currently enjoys healthy demand for its TrueBeam
technology, which has meaningfully contributed to its net order
oncology growth. The company's latest offering -- EDGE
Radiosurgery Suite might be a breakthrough in cancer treatment.
We also note that Varian's competitor in the radiation oncology
) continues to lag in terms of growth.
Moreover, Varian enjoys a strong balance sheet marked by low debt
and moderate cash. The company from time to time uses a part of
its healthy cash flow for share repurchases.
However, uncertainties regarding reimbursement and a still weak
hospital capital spending environment across many developed
countries, especially in Europe, are significant challenges. The
ongoing softness in the market for freestanding clinics is
another short-term headwind.
We currently have a long-term Neutral recommendation on Varian.
The stock carries a Zacks #3 Rank, which translates into a
short-term Hold rating.
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