Varian Medical Systems (VAR) will showcase new technologies in the ongoing (Nov 30 through Dec 5) annual meet of the Radiological Society of North America (RSNA). The technologies include X-ray tubes, PaxScan wireless digital image detectors, and Nexus image processing software and workstations.
These technologies have been developed for better quality and high-speed digital imaging systems that support high patient throughput, flexibility, and usability. They are already designed into new systems for digital mammography, mobile C-arm and CT imaging.
The new technologies expand Varian’s product portfolio that comprise Oncology Systems (77% of fiscal 2014 revenues), Imaging components (22% of fiscal 2014 revenues) and Other (1% of fiscal 2014 revenues) that consisted of VPT and GTC (scientific research facilities).
Varian continues to invest in developing new platforms and technologies in order to improve its customer base and competitive position. The investments are driving top-line growth as is evident from the fourth-quarter results.
Revenues scaled up 5.5% from the year-ago quarter to $812.1 million driven by robust performance by the Oncology segment (up 6.2%), partially offset by soft X-ray tube sales that led to the nominal growth in the Imaging segment (up 0.5%).
More importantly, backlog improved 10.5% year over year to $3.17 billion at the end of the fourth quarter. Oncology segment gross orders increased 9% to $918 million, while the same at the Imaging segment jumped 16% to $234 million.
In September this year, Varian unveiled a number of new software and services that enable information sharing and data analytics to support better-quality cancer care. The varied offerings include TrueBeam and Edge platforms, InSightive Analytics, Qumulate QA and RapidPlan knowledge-based treatment planning.
We believe that Varian has significant growth opportunities in the cancer care market, which is its largest, owing to its innovative product portfolio.
However, Varian’s near-term outlook hints at headwinds facing both the Oncology and Imaging segments. For the first quarter of fiscal 2015, Varian expects combined revenues from Oncology Systems and Imaging Components businesses as well as proton orders, currently in backlog, to grow 0%–2%, which fails to impress us.
Intensifying competition from the likes of Siemens and Philips as well as smaller and more specialized radiation therapy equipment manufacturers like Elekta and Accuray Inc. (ARAY) is a growing concern in this regard. Also, higher operating expenses and consistent investments in new product development will continue to hurt profitability in the near term.
Zacks Rank
Currently, Varian has a Zacks Rank #5 (Strong Sell). Better-ranked stocks include AngioDynamics (ANGO) and Edwards Lifesciences Corp. (EW). While AngioDynamics sports a Zacks Rank #1 (Strong Buy), Edwards Lifesciences holds a Zacks Rank #2 (Buy).
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