A month has gone by since the last earnings report for Varian Medical Systems, Inc.VAR . Shares have lost about 5.7% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to its next earnings release, or is VAR due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Varian Medical reported first-quarter fiscal 2018 adjusted earnings of $1.06 per share, which beat the Zacks Consensus Estimate of 98 cents. Adjusted earnings also improved 112% on a year-over-year basis.
Revenues totaled $678.5 million, which beat the Zacks Consensus Estimate of $639.47 million. On a year-over-year basis, revenues increased 12.8%.
The company has strengthened its foothold in the radiation therapy as the market grew 4.5% on an order basis in the trailing 12 months.
In the said quarter, oncology revenues totaled $649 million, up 14% on a year-over-year basis.
Gross orders were $620 million, up 7% from the year-ago quarter. Gross orders in Americas inched up 2% on a yearly basis. In EMEA, gross orders rose 19% year over year to $190 million. In APAC, gross orders increased 6% year over year with strong orders growth in Greater China and Japan. Operating earnings for the segment rose 19%.
Revenues in this segment declined 4% on a year-over-year basis to $29 million. However, the company booked two new proton orders - at the University of Alabama, Birmingham and at the Sylvester Comprehensive Cancer Center, University of Miami.
The company will install a Varian ProBeam Compact single-room proton therapy system in the New University of Alabama Birmingham Proton Therapy Center. Additionally, the company will also provide its ARIA information management system and Eclipse treatment planning system.
HyperArc and Halcyon Drive Revenues
HyperArc, a high definition radiotherapy technology, continues to gain prominence. The platform witnessed 57 new orders in the 2017. More than 60% of those orders are upgrades.
Notably, HyperArc is designed to treat multiple metastases brain cancer cases and continues to witness strong demand. The number of unique Varian software customers grew 4% in the first quarter. The installed bases of RapidPlan Double and Velocity also grew high double-digits. Revenues for these services grew 8% in the oncology business, which includes performance obligations for installation, training and warranty.
In the first quarter, the Halcyon platform witnessed 62 total orders since its inception in 2017. This reflects solid demand for the platform in the quarters ahead. The anticipated growth will be driven by solid new-scaled configurations optimized for different customer segments and with advanced capabilities.
Gross margin in the reported quarter is 44.6%, which expanded 20 basis points (bps) on a year-over-year basis.
Operating margin was 17.9%, expanding 1500 bps on a year-over-year basis.
Oncology gross margin was 46.5%, up 36 bps. Particle therapy gross margin was down to $2 billion in the quarter, due to a mix of lower margin deals.
The company exited the first quarter with cash and cash equivalents of $823 million and debt of $340 million.
Moreover, cash flow from operations is $179 million.
For 2018, the company expects revenues in the range of 4-7%. Adjusted earnings per share are expected in the band of $4.24-$ 4.36, while cash flow from operations are projected in the range of $475-$550 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter In the past month. The consensus estimate has shifted by 5.1% due to these changes.
Varian Medical Systems, Inc. Price and Consensus
At this time, VAR has a great Growth Score of A, though it is lagging a lot on the momentum front with a C. The stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than momentum investors.
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. Notably, VAR has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.