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February 24, 2012 at 07:00 PM
Raj Denhoy
Jefferies
212-336-7070
[email protected]
Accuray’s first full-quarter post the Tomotherapy acquisition was largely a success when viewed through the lens of its initial targets for revenue growth, a profitable service business, and return to profitability. The company’s non-GAAP revenue of $95.4 million (+16.8 percent year over year) was well ahead of our $84.5 million (+3.5 percent year over year) forecast as well as Street consensus of $83.8 million (+2.8 percent year over year).
Overall revenues surged on beats in both product sales ($56.5 million versus our $50.6 million estimate) and service revenues ($38.3 million versus our $32.2 million estimate). Loss per share of ($0.17) was ahead of our ($0.25) estimate and Street consensus of ($0.28) on the revenue beat, an unexpected surge in the overall service margin, and lower relative operating expenses (46.7 percent of revenue versus our 48.4 percent estimate).
ARAY achieved an aggregate service margin of 12 percent which although in-line with our admittedly aggressive 12.3 percent estimate is sure to be viewed favorably considering the significance of improving the Tomotherapy service business to the overall success of the integration process. The higher service margin was achieved from a combination of higher than expected service revenues from a growing Cyberknife install base and the initial phases of retrofitting the Tomotherapy install units with newer components.
While the company’s F1Q showed significant strides … we continue to view shares as an attractive opportunity and maintain our Buy rating.
Karen Andersen, CFA
Morningstar
312-384-4826
[email protected]
The long patent life of Roche’s portfolio puts it among the biotechs least exposed to generic competition. Patents don’t begin to expire until 2013 – when Rituxan loses protection in Europe – and management is implementing strategies to counteract future competitive pressures that we think will enable the firm to achieve 5 percent five-year earnings growth. Subcutaneous versions of Roche’s blockbuster antibodies are in the works, which could reduce hospital costs and add to convenience. Novel drugs are in development that could improve on the efficacy of its current products or represent new, personalized treatments for cancer patients.
Roche also has a solid pipeline beyond oncology, including drugs to treat schizophrenia and hepatitis C. With the Genentech integration starting to yield synergies, we think Roche’s drug portfolio and industry-leading diagnostics conspire to create sustainable competitive advantages.
We expect pharmaceutical and diagnostic synergies to increase in the wake of the Genentech acquisition. A late-stage pipeline including drug candidates in schizophrenia and hepatitis C could expand Roche’s reach beyond oncology.
Tycho W. Peterson
JP Morgan
212-622-6568
[email protected]
During the past year, the debate over Varian Medical Systems (VAR) has been about upside from the TrueBeam product cycle, continued execution, capital deployment and secular industry tailwinds vs. fears over U.S. reimbursement and potential macroeconomic effects on capital expenditure, particularly in Europe. While many of these issues will remain in 2012, an important and underappreciated recent development – the selective exit of Siemens from the radiation oncology market – dramatically improves the risk/reward, as VAR (and others) should benefit from a global industry that is moving from four to three competitors. With that in mind, we upgrade VAR to Overweight and increase our December 2012 price target to $75.
