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Here’s Why You Should Hold Varian Medical (VAR) Stock Now


Varian Medical Systems, Inc. VAR is expected to benefit from acquisitions and significant international presence. However, the company’s margins are pressed.

The stock currently has a Zacks Rank #3 (Hold).

Shares Down

Over the past year, shares of Varian Medical have rallied 8% compared with the industry’s 13.8% rise. The current level is higher than the S&P 500 index’s 2.3% gain.

What’s Deterring the Stock?

An intensely competitive industry is likely to keep Varian Medical’s margins under pressure. In fact, in the last reported quarter, the company’s gross margin was 42.3% of net revenues, down 10 basis points (bps) on a year-over-year basis.

Notably, Varian Medical’s research and development expenses rose 15.3% year over year to $59.6 million in the quarter. Selling, general and administrative expenses also increased 4.1% year over year.

Why Should You Retain Varian Medical?

Varian Medical has lately been on an acquisition spree.

In October, the company bought Noona Healthcare, whose patient software app helps capture cancer patient-reported outcomes (PROs) and enable direct communication with patients. (Read More: Varian Buys Noona to Boost Oncology Software Services)

Earlier this year, Varian Medical extended its Oncology portfolio with the acquisition of humediQ, the manufacturer of IDENTIFY, a surface-guided radiation therapy positioning and motion management system. (Read More: Varian Acquires humediQ, Boosts Motion Management Portfolio)

The California-based provider of radiotherapy also enjoys a strong international presence.

Last month, Varian Medical announced that it was selected by Medical Specialist Holdings to equip seven of its centers in South Africa with Varian linear accelerators and Eclipse treatment planning system.

Recently, Varian Medical’s coveted Halcyon system was approved by the China National Medical Product Administration (NMPA). (Read More: Varian Medical's Halcyon Gets NMPA Approval in China)

Earlier, Varian Medical’s Advanced Radiotherapy Clinical School started running courses at India-based Reliance Group's flagship Kokilaben Dhirubhai Ambani Hospital (KDAH) in Mumbai. (Read More: Varian & Reliance Group Tie Up to Enhance Cancer Care)

Which Way Are Estimates Headed?

For the fiscal first quarter, the Zacks Consensus Estimate for earnings is pegged at $1.06. The same for revenues is pinned at $714.3 million, showing an increase of 5.3% year over year.

For fiscal 2019, the Zacks Consensus Estimate for revenues is at $3.10 billion, reflecting a rise of 6.2% year over year. The same for earnings stands at $4.69, showing growth of 6.1% year over year.

Varian Medical has a Growth Score of A. This reflects possibilities of outperformance over the long haul. Our research shows that stocks with a Growth Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) are better picks than most.

Key Picks

Some better-ranked stocks in the broader medical space are Integer Holdings Corporation ITGR, OPKO Health, Inc. OPK and Surmodics SRDX.

Integer Holdings has an earnings growth rate of 31.2% for the next quarter and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

OPKO Health’s long-term earnings growth rate is projected at 12%. The stock carries a Zacks Rank of 2.

Surmodics’ long-term earnings growth rate is estimated at 10%. The stock carries a Zacks Rank #2.

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