Varian Medical Systems Inc. (VAR) is set to report first-quarter 2015 results on Jan 28. Last quarter, Varian reported earnings of $1.11 per share, which missed the Zacks Consensus Estimate by a dime.
Let’s see how things are shaping up for this quarter.
Factors at Play
The oncology business in North America is witnessing a drop in capital expenditure on account of uncertainty emanating from health care reforms and anticipated changes in reimbursement. Additionally, market trends in Europe continue to remain sluggish, which is negatively impacting Varian’s top line.
Although international sales as percentage of revenues is increasing, the higher demand for lower-margin products from China, India and Brazil is expected to keep margins under pressure over the next several quarters. Pricing pressure in traditional radiotherapy also raises concern.
Apart from these macro-economic concerns, intense competition and continuing investment on developing new platforms and technologies are major headwinds. Also, higher operating expenses will remain a drag on profits in the near term.
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 lags our expectations.
Earnings Whispers?
Our proven model does not conclusively show that Varian is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Varian has a -2.30% ESP. That is because the Most Accurate estimate stands at 85 cents per share, lower than the Zacks Consensus Estimate of 87 cents.
Zacks Rank: Varian has a Zacks Rank #4 (Sell).
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Here are a few stocks worth considering that, per our model, have the right combination of elements to post an earnings beat this quarter:
AbbVie (ABBV) with an Earnings ESP of +1.18% and a Zacks Rank #2 (Buy).
Hologic (HOLX) with an Earnings ESP of +2.78% and a Zacks Rank #2.
IntersectENT (XENT) with an Earnings ESP of +11.11% and a Zacks Rank #2.
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