On Dec 28, we issued an updated research report on Varian Medical Systems, Inc. VAR. We believe new product launches presents significant growth opportunity for the company over the long haul. However, a strong U.S. dollar and stiff competition in the oncology market are major headwinds.
The oncology business in North America is witnessing a drop in capital expenditure on account of uncertainty originating from health care reforms and anticipated changes in reimbursement. The higher demand for lower-margin products in China, India and Brazil is expected to keep margins under pressure over the next several quarters.
Varian also faces severe competition, which is expected to increase R&D expenditures in the nascent proton therapy market, which will again exert pressure on margins. Moreover, pricing pressure in traditional radiotherapy is a major concern.
However, international markets are too under-equipped to address the growing incidence of cancer. The company’s strong overseas presence is expected to enable it to leverage this opportunity in emerging markets. In line with growing demand for cancer treatment in overseas markets, Varian’s ex-U.S. sales, in Europe, Africa and particularly Asia, are growing at a faster rate than in the domestic market.
We are also upbeat about the expansion in the company’s product portfolio, which are expected to bode well for the top line. The VitalBeam platform received both FDA approval and CE Mark clearance in October, this year. We expect VitalBeam to help the company gain better market traction.
Varian also continues to ink various supplier deals, which are expected to boost its top line. The list includes established players such as Toshiba Medical Systems, UnityPoint Health, Prime Healthcare Services, among others. These collaborations will drive order wins, which will boost Varian’s top line in fiscal 2015 and beyond.
Zacks Rank & Stocks to Consider
Varian currently has a Zacks Rank #4 (Sell). Better-ranked stocks in the medical sector include Masimo MASI, Steris Plc STE and Exactech EXAC. All the stocks sport a Zacks Rank #1 (Strong Buy).
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