Varian Medical Hits 52 week High, Oncology Prospects Bright

Share price of Varian Medical Systems Inc. VAR rallied to a new 52-week high of $96.31 on Aug 29. This represents an impressive year-to-date return of approximately 19.2%, better than the S&P 500's 6.7% over the same period.

Currently, Varian Medical has a Zacks Rank #3 (Hold). Notably, the stock has a market cap of $3.15 billion.

Key Factors

Varian's oncology business growth prospects remain impressive. The company is addressing both the tier 1 and mid-tier markets through its Edge, Truebeam and VitalBeam products. The company is also winning contracts, not only in the Americas but also in the international markets, which is a huge positive.

The strong third quarter of 2016 results validates this growth scenario. Adjusted earnings of $1.22 per share beat the Zacks Consensus Estimate by a nickel and increased 6.1% on a year-over-year basis. The figure comfortably surpassed management's guided range of $1.16–$1.20 per share.

Oncology System sales increased 8.3% from the year-ago quarter to $605.2 million, while gross orders increased 6.4% to $675.9 million in the quarter. Moreover, Oncology gross margin improved more than 400 basis points to 46% driven by favorable product mix (higher mix of TrueBeams and software) as well as productivity gains.

Following the strong results, Varian raised its fiscal year 2016 guidance. The company now expects adjusted earnings in the range of $4.62–$4.66 per share, up from the previously given guided range of $4.55–$4.65 per share. Revenues are still expected to increase by 3% in fiscal year 2016.

Estimate Revisions

The Zacks Consensus Estimate for fiscal 2016 increased by a penny to $4.65 over the last 7 days. For fiscal 2017, estimates have remained steady at $4.94 over the same time frame.

Key Sector Picks

Better-ranked stocks in the broader medical sector include Masimo Corporation MASI, Natus Medical BABY and IDEXX Laboratories IDXX. All three stocks sport a Zacks Rank #1 (Strong Buy).

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