Setting new 52-week highs in each of the last four months, Varian Medical Systems, Inc.‘s (VAR, NYSE) stock has rallied 19% this year. The company’s chief products include X- ray equipment and pricey oncology systems that kill cancerous tissue with radiation. After curbing capital spending last year, hospitals should begin replacing older equipment as their balance sheets improve. Varian has grown free cash flow, profits, and revenue over the last year.
Cost controls and a shift toward new products and software with richer profit margins have helped fuel the profit gains. Orders from overseas markets are starting to pick up as radiosurgery gains acceptance as a cancer treatment in foreign countries. For fiscal 2010 ending September, Wall Street expects 7% higher per-share earnings. Over the next five years, the consensus predicts 15% annualized profit growth. Varian Medical is a Focus List Buy and a Long-Term Buy.
Richard J. Moroney, Dow Theory Forecasts
