Here's Why You Should Hold Onto Varian Medical Stock Now

Varian Medical Systems, Inc. (NYSE:VAR) is likely to gain from solid prospects of its core Oncology Systems segment. However, the company apprehends material impact on second-quarter revenues due to the outbreak.

Shares of this company have declined 16.5% compared with the industry’s 11.9% drop in a year’s time. The current level also compares unfavorably with the S&P 500 index’s 5.2% decline over the same time frame.

This $10.26-billion medical technology company currently has a Zacks Rank #3 (Hold). Varian Medical’s earnings are expected to grow 8% in the next five years. Also, the company has a trailing four-quarter positive earnings surprise of 0.6%, on average.

Let’s take a closer look at the factors that are working in favor of the company right now.

Oncology Systems Arm Holds Key

Oncology Systems is Varian Medical’s largest operating business segment and has been driving the company’s top line consistently.

In recent times, revenues at the segment grew 11.4% year over year and 9% at constant currency. Notably, the segment has been witnessing significant upside in its net installed base worldwide. Oncology Systems has been gaining from strength in the United States, EMEA, China and Korea.

That’s not all. The segment has seen some positive developments in recent times.

For instance, in March, the Quebec government selected Varian Medical for an order of 12 medical linear accelerators. Notably, over the last four years, a total of 21 Varian linacs have been purchased by the government.

Last month, Varian Medical received FDA clearance for its Ethos therapy, an Adaptive Intelligence solution, which is further expected to bolster its Oncology Systems unit. For investors’ notice, Ethos therapy is an AI-driven solution that provides an opportunity to transform cancer care.

Earlier, the company signed an agreement with Massachusetts General Hospital to provide seven Varian radiotherapy systems and related services for advanced cancer treatment at its clinics.

Deterrents

The recent coronavirus outbreak has rattled U.S. medical technology companies, with major players apprehending losses owing to shutting down of operations worldwide.

Varian Medical is no exception since the company enjoys a strong international presence, particularly in the Asia Pacific. Notably, the company is experiencing delays in hardware and software installations and acceptance as well as in the delivery of interventional oncology procedures. Though no orders have been cancelled, management expects fiscal second-quarter revenues to be negatively impacted. In fact, revenues are expected in the range of $800 million to $825 million.

Given the prevailing uncertainty, Varian Medical projects 7-9% revenue growth for fiscal 2020.

Estimates Picture

For fiscal 2020, the Zacks Consensus Estimate for revenues is pegged at $3.47 billion, indicating an improvement of 7.5%. For adjusted earnings per share, the same stands at $4.85, suggesting growth of 4.8% from the year-ago reported figure.

Key Picks

Some better-ranked companies in the broader medical sector include Stryker Corporation (NYSE:SYK) , Accuray Incorporated (NASDAQ:ARAY) and IDEXX Laboratories, Inc. (NASDAQ:IDXX) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stryker’s long-term earnings growth is expected at 11.9%.

Accuray’s fiscal fourth-quarter earnings are expected to skyrocket 200%.

IDEXX Laboratories’ first-quarter earnings growth is projected at 5.1%.

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