Palo Alto, CA-based leading manufacturer of medical devices and software,Varian Medical Systems, Inc. VAR recently announced that its flagship ProBeam system for proton therapy has received Shonin approval from the Japanese Ministry of Health, Labor and Welfare (MHLW). The approval is expected to help Varian fortify its hold in Japan.

It is also a significant development for Varian’s Particle Therapy business. Second-quarter revenues at the segment totaled $31 million, up 1% on a year-over-year basis.

During the quarter, the company received orders worth $28 million, including an order for a new single-room ProBeam Compact system at the segment.

Getting back to the development, Varian will be showcasing the ProBeam system at the Particle Therapy Co-Operative Group (a nonprofit organization) in Yokohama during May 11–13. With the growing demand of proton therapy among cancer patients, the regulatory approval is likely to help Varian boost its top line in the near term.

Stock Performance & Estimate Revision

Over the last three months, the price performance of Varian has been promising. The stock gained 20.1%, much higher than the S&P 500’s return of 3.6% over the same time frame.

Varian Medical Systems, Inc. Price

Varian Medical Systems, Inc. Price | Varian Medical Systems, Inc. Quote

Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen one analyst go higher in the past 60 days, compared to two moving lower. Meanwhile, the full-year estimates have seen one upward revision, compared to no movement in the opposite direction.

This has had a significant impact on the consensus estimate, as the current quarter estimates fell roughly 3% over the last three months, while full-year estimates inched up 0.5%.

This somewhat mixed trend justifies the company’s Zacks Rank #3 (Hold).

Our Take

The Japan proton therapy market is estimated to multiply at a CAGR of 18% during the period 2017–2022 (per a report by Research & Markets). This is likely to help Varian grow over the long haul.

On the flipside, despite being a leading player in the proton therapy space, cutthroat competition from bigwigs likes Hitachi, Ion Beam Applications and others are expected to increase R&D expenditures of the company, which will keep margins under pressure.

KeyPicks

Better-ranked stocks in the broader medical sector are Luminex Corporation LMNX, Hologic, Inc. HOLX and Sunshine Heart Inc SSH. Notably, Hologic and Luminex sport a Zacks Rank #1 (Strong Buy), while Sunshine Heart carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Luminex has an expected long-term adjusted earnings growth of 16.3%. The stock added roughly 14.4% over the last three months.

Hologic has a long-term expected earnings growth rate of 11.33%. The stock has a solid one-year return of roughly 36.1%.

Sunshine Heart posted a positive earnings surprise of 58.24% in the last reported quarter. The stock recorded a stellar EPS growth rate (last 3–5 years of actual earnings) of almost 22%.

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