Varian Medical Systems Closes Velocity Software Acquisition - Analyst Blog

California-based medical instruments maker Varian Medical Systems, Inc. VAR recently completed its acquisition of certain assets of Velocity Medical Solutions, LLC, which was announced last month. However, since the announcement of completion of the acquisition, shares of VAR dropped 1.0% to close at $83.94 yesterday.

Velocity Medical is a privately-held Atlanta-based developer of specialized software for cancer clinics. The acquisition involves the purchase of Velocity's software that enables clinicians to aggregate unstructured treatment and imaging data from diverse systems, which can be used to make more informed treatment decisions. VAR expects this buyout to boost its offering of data-driven clinical decision-making support services for clinicians.

The two companies remain tight-lipped regarding the financial terms of the deal. Nevertheless, VAR announced that it plans to continue the development of this oncology software platform with the Velocity team in Atlanta, GA.

The Velocity software has already been used at over 200 cancer treatment centers globally. Post-acquisition, VAR expects its global sales, service and support network to contribute to faster and deeper market penetration for the Velocity product.
 
In January this year, VAR also inked a 3-year, $515 million deal with Toshiba Medical Systems to supply its medical imaging components for integration into Toshiba's imaging systems in order to jointly develop new product technologies for the imaging market.

Recent Earnings

For the first quarter of fiscal 2014, VAR reported a 5.8% rise in net earnings per share to 91 cents from 86 cents in the prior-year fiscal quarter, which also inched past the Zacks Consensus Estimate by a penny. With this, VAR also met its own guidance of a 6–7% rise in earnings per share to 87–91 cents for the said quarter.

Revenues in the quarter grew nearly 5.0% to $711.5 million, but lagged the Zacks Consensus Estimate of $718 million.

Growth in revenues was attributable to the continued strong demand for Oncology services as evidenced by a 2.7% rise in net orders for Oncology Systems to $489.6 million during the quarter.

Revenues from X-Ray Products segment went up 9.1% to $145.0 million in the quarter, driven by market traction for VAR's X-Ray Imaging components, also contributing to overall revenue growth.

For fiscal 2014, VAR expects revenues to grow by 6–8% compared with the earlier guidance of 6–7%. However, the company reiterated its earnings per share guidance between $4.22 and $4.34 for the year. The current Zacks Consensus Estimate of $4.29 lies within the guided range.

Zacks Rank

Currently, VAR has a Zacks Rank #2 (Buy). Other stocks performing well in the medical instruments industry include Cynosure, Inc. CYNO, Syneron Medical Ltd. ELOS and Delcath Systems, Inc. DCTH. All three stocks sport a Zacks Rank #1 (Strong Buy).