Balanced Outlook on Accuray - Analyst Blog

On April 16, we have updated our research report on Accuray Incorporated ARAY. Despite being a loss-making company, we expect the company's product revenues to improve further as medical centers continue to adopt the company's innovative radiosurgery and radiation therapy systems on a global basis.

Accuray posted a narrower loss of $5.4 million, or 7 cents per share for the fiscal 2014-second quarter compared with a loss of $25.5 million, or 35 cents per share for the same quarter in the prior fiscal year as well as the Zacks Consensus Estimate of a loss of 20 cents per share. The narrower loss can be attributed to higher revenues and a substantial fall in operating expenses during the quarter.

Total revenues grew 20.4% to $93.6 million, surpassing the Zacks Consensus Estimate of $81.0 million significantly. Product revenues surged 36.1% to $45.1 million while Service revenues rose 8.7% to $45.5 million.

The improvement in Product revenues was attributable to impressive rise in product orders. Gross product orders almost doubled (102%) to $80.3 million in the quarter while net product orders (gross orders less cancellations and age-outs) soared 232% to $59.4 million in the second quarter.  

At the end of the quarter, product backlog was $362 million, up roughly 30% from the backlog at the end of the fiscal 2013-second quarter. The increase in Service revenues was driven by the higher installed base and conversion of customers to emerald and diamond service contracts.

For fiscal 2014 ending June this year, Accuray upgraded its revenue guidance to a range of $340 to $350 million from the prior range of $325 to $345 million based on its performance in the first half of fiscal 2014 and optimism triggered by the continued momentum of converting orders to revenues. The current Zacks Consensus Estimate of $344 million lies within the guided range.

However, Accuray expects lower net orders in second half of fiscal 2014 compared with the net orders in the first half of the fiscal year. With this, Accuray expects to end the fiscal year with net product orders of $215 to $225 million, reflecting 25–31% growth over the prior fiscal year.

Currently, Accuray retains a Zacks Rank #2 (Buy). The company expects to release its fiscal 2014-third quarter results on April 29.

Other medical instrument stocks that are currently worth a look include Delcath Systems, Inc. DCTH, Syneron Medical Ltd. ELOS and DexCom, Inc. DXCM. Delcath Systems and Syneron Medical sport a Zacks Rank #1 (Strong Buy), while DexCom carries a Zacks Rank #2 (Buy).