Swiss Consolidate Varian Eclipse - Analyst Blog

Recently, Varian Medical Systems (VAR) disclosed the successful consolidation of its Eclipse treatment planning system with Elekta linear accelerators. This unique integration of software and equipment will enable Varian to provide VMAT treatments at Swiss-based Kantonsspital St. Gallen.

Kantonsspital St. Gallen is a well-regarded public hospital in Switzerland. More than 1,200 cancer patients from north-eastern Switzerland receive treatment at the hospital annually. The consolidation has already been used for advanced patient treatment. The first patient to be treated with the integrated solution at the Swiss hospital was an 83-year-old patient suffering from non-Hodgkin's lymphoma.

This should expand Varian's solid foothold in Switzerland. As the company expands its installed base in the country, we expect revenues to grow further. Evidently, overseas demand is strong for Varian's high energy cancer treatment machines.

According to medical experts at Kantonsspital St. Gallen, the consolidation will serve the hospital's need for brisk volumetric modulated arc treatments in radiation oncology. This should improve patient volume and standards of care over time. As per management, the integration of Eclipse with Elekta linear accelerators should support advanced cancer treatment.

We believe that Varian is poised to increase its market share in radiation oncology. International markets are adjudged to be too under-equipped to address the growing incidence of cancer. Given the rising demand for cancer treatment in the overseas market, stronger overseas presence should increase Varian's ex-U.S. sales.

Moreover, Varian continues to post decent results despite the contagion of economic problems in Europe and sustained softness in certain end markets. The company delivered positive earnings surprises in the last 4 quarters with an average beat of 3.64%. Varian is slated to release third-quarter fiscal 2013 earnings results on Jul 24.

On the tepid si! de, Varian competes with well-funded competitors for a limited pool of sales volume. Pricing pressure in emerging markets adversely affects margins. The macro problems in Europe may also affect its growing international franchise.

The stock carries a Zacks Rank #4 (Sell). Other medical stocks such MAKO Surgical Corp. (MAKO), Edwards Lifesciences Corp. (EW) and Natus Medical Inc. (BABY) are worth considering. These stocks carry a Zacks Rank #2 (Buy).