Morningstar | Strong Bookings in 1Q for Varian
Varian Medical Systems reported a strong first quarter, with healthy oncology order growth across all major regions. We're planning to slightly raise our fair value estimate on the strength of the first quarter as well as cash flows realized since our last report. We maintain our wide moat rating.The oncology business reported a robust 16% order growth, Varian's highest growth rate in years. Strong performance was broad-based: Americas was up 12%; Europe, Middle East, and Africa up 15%; and Asia-Pacific up 25%. The company's backlog ended up 11% over the prior year. Hardware, software and services all delivered good performance. On the hardware side, Halcyon continues to exceed expectations, enjoying rapid adoption globally; the company has received 202 orders for this system in less than two years. More importantly, 60% of Halcyon has been into greenfield, supporting Varian's claim that the system is expanding the addressable market. Based on the order pattern, it appears that Varian continues to take market share from other players, namely Elekta, across the globe. Software and services also fared well in the quarter, with RapidPlan eclipsing 1,800 installations (and underscoring a still massive opportunity, given Varian's roughly 8,200 linacs base).
China remains a major strength for the firm. With the Chinese government announcing another tender program, Varian, with its more than 50% capture rate, stands to benefit from the sizable opportunity. With Halcyon now approved for sale in China, we anticipate further momentum for the Chinese hardware segment. China remains a massive opportunity for radiotherapy, even as it has become the industry's second-largest market outside the U.S.
Varian delivered a slightly lower gross margin in the quarter, due to the geographic mix. The tariffs' hit was about 100 basis points, although the company got some good news from the U.S. trade representative that Halcyons manufactured in China are now excluded from tariffs.
Varian Medical Systems is a manufacturer of medical devices and software for treating cancer and other medical conditions. The company's segments are: Oncology Systems, which designs, manufactures, sells and services hardware and software products for treating cancer with radiotherapy, and treatments such as fixed field intensity-modulated radiation therapy, image-guided radiation therapy, volumetric modulated arc therapy, stereotactic radiosurgery, stereotactic body radiotherapy and brachytherapy, as well as associated equipment; and Proton Solutions, which develops, designs, manufactures, sells and services products and systems for delivering proton therapy, for the treatment of cancer.
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