Varian Medical Systems, Inc. (VAR) broke ground on new construction that will expand its current Salt Lake City manufacturing facility to allow consolidation of operations currently underway outside Utah. The plant expansion is expected to create a total of 1,000 new full time jobs in the state of Utah over the next 20 years.
Salt Lake City serves as the headquarters for the manufacturing of VAR’s X-ray products. The additional space will allow for the production of the company’s flat panel image detector and X-ray tube product lines. It will also serve as cleanrooms, R&D laboratories, expanded manufacturing space and administrative offices.
VAR's capital investment and planned expansion will have a positive impact on Utah's tax base and employment outlook. Currently, VAR employs 860 people in Utah. The expansion effort will add 135,000 square feet to the existing 341,000 square foot building and is expected to generate more than $400 million in new state wages.
The effort to expand VAR's presence in Salt Lake City began in January this year through a partnership with the Governor's Office of Economic Development (GOED). The GOED board of directors approved a tax credit of approximately $7.1 million in the form of a post-performance Economic Development Tax Increment Finance incentive.
The board expects to generate over $35 million in new state tax revenues from VAR over the fifteen-year agreement. Each year, as VAR meets the criteria in its contract with the state, it will earn a portion of the tax credit.
Building on the 45 years of economic partnership with Utah, VAR adds to the state’s life science sector which has more than 150 medical device companies. Also, VAR is one of Utah’s largest exporters, and with the facility expansion, VAR will be able to bolster its medical device sales.
Recent Earnings
In the third quarter of fiscal 2014, VAR posted nearly 5.0% rise in adjusted earnings per share to $1.08 from $1.03 recorded in the comparable quarter of fiscal 2013. With this, earnings per share met the Zacks Consensus Estimate for the quarter.
Revenues in the quarter scaled up 3.0% to $747.7 million, missing the Zacks Consensus Estimate of $766 million. Revenue growth was driven by strong gross orders in Imaging Components and Particle Therapy businesses, which more than offset a 1% decline in Oncology Systems orders. The fall in Oncology Systems orders is attributable to prevailing weakness in Japan that mitigated double-digit rise in orders in developing markets.
For the fourth quarter of fiscal 2014, VAR expects earnings per share in the range of $1.14 to $1.29 for the quarter. The current Zacks Consensus Estimate of $1.23 lies above the guided range. The company also expects revenues to increase in the range of 7 to 15%.
Currently, VAR carries a Zacks Rank #3 (Hold). Some better-ranked medical instruments stocks include Alphatec Holdings, Inc. (ATEC), ERBA Diagnostics, Inc. (ERB) and RTI Surgical Inc. (RTIX). All these stocks sport a Zacks Rank #1 (Strong Buy).
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