How Does Varian Medical Systems Compare to Peers on Valuation?



Peer comparison

On June 16, 2016, Varian Medical Systems (VAR) was trading at a forward PE (price-to-earnings) ratio of ~17.7x, which is lower than the industry average of ~20.7x. The company is trading at a lower ratio than its peers Thermo Fisher Scientific (TMO), C R Bard (BCR), and Intuitive Surgical (ISRG).

The forward PE ratio is a growth measure that compares the current stock price of a company with the estimated earnings per share for the next 12 months. For diversified exposure to VAR, you can invest in the PowerShares S&P 500 Low Volatility Portfolio (SPLV). VAR accounts for 0.87% of SPLV’s total holdings.

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Stock price performance

On June 16, 2016, Varian Medical Systems’ stock price was $81.80, representing a fall of 3.1% since the company’s 2Q16 earnings release on April 27, 2016. The stock was trading at a 52-week high of $90.80 on July 29, 2015, and at a 52-week low of $71.10 on September 28, 2015.

Varian Medical Systems’ stock price and valuations have fallen gradually in the short term. The company registered lower-than-expected revenues in 2Q16. Although Varian Medical Systems has a strong cash position, it continues to see a slowdown in earnings.

However, the company has a leading market position and strong balance sheet. Moreover, its business model generates a large portion of revenue from after-sale services. Further, the company’s consistent approach to developing new technologies to improve therapies for cancer patients helps the company enhance and expand its product portfolio. Thus, Varian Medical Systems exhibits strong business fundamentals.


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