Varian (VAR) Rides on Diverse Product Line, Competition Rife

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On Mar 2, we issued an updated research report on Varian Medical Systems, Inc.VAR . While the company has delivered strong performances driven by solid product line, slow capital spending is likely to mar prospects. The stock currently carries a Zacks Rank #3 (Hold).

In 2017, Varian Medical saw a significant product launch in the form of Halcyon Therapy System. The company unveiled the Halcyon radiotherapy treatment system recently. Since its inception in 2017 till the first quarter of fiscal 2018, the Halcyon platform witnessed 62 total orders. It received both 510(k) clearance and CE Mark from the European directive, allowing the company to start selling the system in the United States.

Apart from radiotherapy, Varian Medical also holds significant promise in proton therapy market. The company's ProBeam Compact proton therapy system is superior to other external beam radiotherapies in precisely locating cancerous tumors, consequently reducing side-effects to surrounding tissues.

In the recent past, Varian Medical has upgraded its ProBeam system software to ProBeam version 2.5. Moreover, in the first quarter of fiscal 2018, the company booked two new proton orders for ProBeam Compact single-room systems.

It also has a strong overseas presence. The company's sales in Europe, Africa and particularly Asia, are growing at a faster rate than in the domestic market. In December 2017, Varian Medical announced that Peter MacCallum Cancer Center in Melbourne, Australia selected the company's Eclipse treatment planning to replace its existing systems across all five of its sites.

In the past year, Varian has outperformed the industry . The stock has returned 39.9%, compared with the industry's rally of 22.4%.

Varian Medical Systems, Inc. Price

Varian Medical Systems, Inc. Price | Varian Medical Systems, Inc. Quote

However, due to stiff competition, Varian Medical's research and development expenses are expected to increase which are likely to keep the margins under pressure. Although international sales as percentage of revenues is increasing, the higher demand for lower-margin products from China, India and Brazil is anticipated to keep margins strained over the next several quarters.

Varian Medical competes with large electronic companies such as Siemens and Philips as well as with smaller and more specialized radiation therapy equipment manufacturers like Elekta and Accuray. Such intense competition is also likely to slow down the company's expenditures in the near term and increase R&D expenditures in the nascent proton therapy market.

Zacks Rank and Key Picks

A few better-ranked medical stocks are, Bio-Rad Laboratories Inc. BIO , Centene Corporation CNC and Mednax, Inc. MD . All of these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank Stocks Here .

Bio-Rad has a projected growth rate of 20% for the long-term. The stock has returned 21.4% in the past six months.

Centene has an anticipated long-term growth rate of 14%. The stock has returned 14.1% in the past six months.

Mednax has an expected long-term growth rate of 10%. The stock has returned 28.9% in the past six months.

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Varian Medical Systems, Inc. (VAR): Free Stock Analysis Report

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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 Nasdaq, Inc.

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

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