In response to its fiscal first-quarter results and guidance for 2018, Varian Medical Systems (VAR), a leading provider of radiation therapy products, jumped 12% as of 10:55 a.m. EST on Thursday.
Here's a review of the headline numbers from the company's fiscal first quarter:
- Revenue grew 13% to $679 million. This was slightly behind the $682 million that analysts had predicted.
- Oncology revenue rose 14% to $649 million. This big jump was offset by a 4% decline in revenue from its particle therapy business.
- GAAP net loss per share came in at $1.22. However, this was largely the result of one-time charges related to the Tax Cuts and Jobs Act.
- Non-GAAP earnings per share more than doubled to $1.06. This was $0.04 ahead of what Wall Street was looking for.
- The company spent $57 million on share buybacks during the quarter, which retired 525,000 shares.
Turning to guidance, here's what management expects to happen in fiscal year 2018:
- Revenue is expected to climb between 4% and 7%. This range compares favorably to the 3.8% growth that Wall Street was expecting.
- Non-GAAP EPS is projected to land between $4.24 to $4.36. The midpoint of this range is also ahead of the $4.24 that analysts had modeled.
Given the higher-than-expected quarterly profit and bullish guidance, it isn't hard to figure out why investors have bid up shares to a fresh all-time high.
Varian Medical Systems' investors have enjoyed market-smashing returns over the last year, which is great to see. However, the big jump has stretched the company's valuation quite a bit. Shares are currently trading hands north of 29 times full-year earnings estimates. That's quite a generous multiple when compared to Varian's long-term profit growth estimate of just 8%.
Given the valuation and modest growth rate, I have a hard time getting excited about owning Varian's stock at these elevated levels. For that reason, I'd suggest that healthcare-focused investors, for now, look elsewhere for compelling stocks to buy.