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Varian (VAR) Wins Competitive Bid for Six Shanghai Hospitals

Palo Alto, CA-based Varian Medical Systems, Inc.VAR recently announced that it has won a competitive bid in Shanghai. Per the bid, this leading manufacturer of medical devices and software for treating cancer, would provide advanced radiotherapy technology and its Eclipse treatment planning system to six major hospitals in Shanghai.

Since the announcement of the news, Varian witnessed a 0.8% uptick in its share price, to close at $80.40 on Feb 10. Over the past one year, the stock registered a return of almost 5.98%. However this was lower than the Zacks categorized Medical Instruments sub-industry's gain of roughly 16.62%. Currently, the stock promises an earnings yield of 4.90% compared with the industry's negative yield of 4.87%.

Varian's focus on China is evident from the fact that it is scheduled to install its Edge radiosurgery suite in five affiliate hospitals of Shanghai Jiao Tong University this year itself. The company will also install its Trilogy system within the Longhua Hospital Shanghai University of Traditional Chinese Medicine. The order for one of the Edge systems and the Trilogy system was booked in the first quarter of the company's fiscal 2017. The order for the remaining four Edge systems was booked in the ongoing quarter.

Our Take

Of late, Varian has been gaining prominence, courtesy of its solid oncology business prospects. We note that the company addresses both tier 1 and mid-tier markets through its Edge, Truebeam and VitalBeam products.

We are particularly upbeat about Varian Medical's recent takeover of Medical Imaging business of PerkinElmer Inc. PKI . Considering the bountiful opportunities for diagnostic imaging in the global space, this development is a significant positive for long-term growth. In this regard, a research report by the Markets And Markets reveals that niche markets are expected to reach a worth of $33.42 billion globally by 2020, multiplying at a CAGR of 6.2%.

Moreover, the company's oncology segment holds considerable promise. Service constitutes about one-third of the Oncology segment revenues and is recurring in nature. It is expected to grow further as the company expands its installed base in overseas markets, particularly in China and Japan.

On the flipside, increasing local competition is a primary headwind. Moreover, the Imaging Components' business spin-off will remain an overhang on the stock, at least in the near term.

Zacks Rank & Key Picks

Currently, Varian has a Zacks Rank #5 (Strong Sell).

Better-ranked medical stocks are Glaukos Corporation GKOS and Neogen Corp. NEOG . Glaukos sports a Zacks Rank #1 (Strong Buy) while Neogen carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Glaukos gained over 100% in the last one year in comparison to the S&P 500's gain of 23.9%. The company has a stellar four-quarter average earnings surprise of over 100%.

Neogen gained 32.3% in the past one year, better than the S&P 500 mark. The stock has an impressive long-term earnings growth rate of 16.7% for the next five years compared to the industry average of 15.2%.

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PerkinElmer, Inc. (PKI): Free Stock Analysis Report

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

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Glaukos Corporation (GKOS): 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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