UPDATE: Morgan Stanley Downgrades Varian Medical Systems to Underweight on Accelerating Headwinds

In a report published Monday, Morgan Stanley analyst Steve Beuchaw downgraded the rating on Varian Medical Systems

from Equal-Weight to Underweight, but reiterated the $65.00 price target. In the report, Beuchaw noted, “Our analysis suggests accelerated Oncology software purchases tied to HITECH/HCIT incentives in 2012 offset deceleration in system orders, driving a ~200bps tailwind and setting a tough comp for 2013. Given: (i) software comps, (ii) competition from Elekta's Versa and Accuray's Tomo, (iii) a second round of US reimbursement cuts impacting payments to freestanding clinics (20% of US Oncology orders) starting in January 2013, (iv) fading large equipment trends in the US and Europe, and (v) secular pressure on US treatment trends, we forecast a deceleration to flat orders in FY13 and a 400bps EBIT CAGR deceleration in 2013-2015 vs 2010-2012. Recent diligence on Versa and Tomo has been positive, while we have seen no impact from Varian's Edge launch to date. Our FY13 Oncology order estimate is $2.39bn, below consensus estimate of $2.5bn.” Varian Medical Systems closed on Friday at $72.78.