Varian Medical Systems (VAR) is slated to report fourth quarter fiscal 2010 (ending September 30) results on Thursday, October 28. The company expects earnings per share in the range of 80 cents to 83 cents for the fourth quarter and in a band of $2.90 to $2.93 for fiscal 2010. The current Zacks Consensus Estimate for the fourth quarter is 84 cents, representing an estimated year-over-year increase of 8.04%.
Third Quarter Recap
Varian posted third-quarter 2010 adjusted (excluding one-time items) earnings per share from continuing operations of 74 cents, beating the Zacks Consensus Estimate of 65 cents. Total revenue was $578 million, up 13% year over year in constant currency, ahead of the Zacks Consensus Estimate of $569 million.
Varian’s net orders came in at $629 million, up 15% in constant currency. The backlog at the end of the quarter stood at $2.1 billion, up 7% year over year.
Revenues from Varian’s Oncology Systems segment, consisting of radiotherapy, brachytherapy, and radiosurgery products, amounted to $456 million, up 6% year over year. Revenues from the company’s X-Ray Products segment, consisting of X-ray tubes and digital detectors for imaging without films, stood at $102 million, up 52% year over year. This segment benefited from rapidly growing demand for medical, industrial and security-oriented X-Ray products.
Estimate Revision Trend
Agreement: Estimate revisions for the fourth quarter and fiscal 2010 are equally biased in the upward direction. Out of a total of 11 analysts currently covering the stock, one raised his/her estimate in the past week, with two upward revisions in the past month. There were no downward revisions over the same timeframes.
Magnitude: The magnitude of estimate revision for the fourth quarter has been static over the last week and month. With regard to fiscal 2010, there was an increase of a penny over both the past 7 and 30 days. The current Zacks Consensus Estimate for fiscal 2010 is $2.94, representing an estimated 10.81% year-over-year increase.
Our Take on Varian
Varian is a leading manufacturer of radiotherapy systems for treating cancer and a supplier of X-Ray tubes for medical and industrial imaging.
The company is poised to increase its market share in the radiation oncology market. International markets are under-equipped to address the growing incidence of cancer. In line with growing demand for cancer treatment in overseas markets, Varian’s ex-U.S. sales, in Europe and particularly Asia, are growing at a faster rate than in the domestic market.
Service constitutes about one-third of Oncology segment revenues, which is recurring in nature. It is expected to further grow as the company expands its installed base in overseas markets, particularly in China and India.
However, Varian aggressively competes with well-funded competitors for a limited pool of sales volume. Moreover, hospital capital expenditure is still restrained in the U.S., affecting the company’s domestic business. The macroeconomic problems, and resultant austerity measures in Europe, may affect its faster-growing international business.
We currently have a Neutral recommendation on Varian over the long term. The stock currently retains a Zacks #2 Rank, which translates into a short-term Buy recommendation.
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