We downgrade our recommendation for leading radiosurgery systems maker Accuray Incorporated (ARAY) to Underperform following the company’s lackluster first-quarter fiscal 2011 results and a tepid outlook. The first quarter loss per share of 8 cents was higher than the Zacks Consensus Estimate of a loss of 7 cents and the year-ago loss of 6 cents.
Net loss swelled 39% year over year on account of lower revenues. Sales dipped roughly 25% year over year, largely missing the Zacks Consensus Estimate, hit by lower products and services revenues. The company has backed its outlook for fiscal 2011.
California-based Accuray is a global leader in the field of radiosurgery and provides a non-surgical treatment option for patients diagnosed with cancer. In the radiation oncology market, the company competes head-to-head with Varian Medical (VAR) and TomoTherapy (TOMO).
Accuray’s CyberKnife system boasts of a technology that differentiates it from traditional treatments. The company continues to enjoy healthy demand for the product as evidenced by sustained growth in the number of patients receiving treatment with the device.
However, Accuray remains susceptible to reimbursement uncertainties surrounding its products. Moreover, its CyberKnife system faces stiff challenge from competitive product offerings, especially from Varian.
Accuray has provided a conservative guidance for fiscal 2011 with a sizable sales deficit, expected to be a drag on the top and bottom lines for the year. The company’s weak revenue guidance for fiscal 2011 reflects lower deferred revenues from the CyberKnife systems sold under the legacy Platinum multi-year service plan (discontinued in October 2005) compared to fiscal 2010.
Accuray expects to book revenues of $5 million in fiscal 2011 under the Platinum plan versus $29 million a year-ago, which will conclude all deferred revenues recognized under this contract.
As such, Accuray needs to find alternative means to compensate for this considerable revenue gap as reflected in its guidance. A weak sales visibility supports our long-term recommendation on the stock. Accuray currently retains a Zacks #5 Rank, which translates into a short-term “Strong Sell” recommendation.
ACCURAY INC (ARAY): Free Stock Analysis Report
TOMOTHERAPY INC (TOMO): Free Stock Analysis Report
VARIAN MEDICAL (VAR): Free Stock Analysis Report
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