Re: VAR
Since the published numbers in the databases mean nothing, I compiled
my own based on pro forma numbers for VAR and recent reports by
several cos identified as being in the same industry/competitors by
VAR's investment bank. I'll post them here to support what I said
about being willing to buy VAR at a little cheaper prices.
VAR ADAC BCR OXE SLMD
P/B 3.8 1.9 4.8 3.1 0.9
P/S 0.96 0.84 2.8 1.8 0.56
ROE 28% 12% 20% 15% 3%
LTD/E 0.36 0 0.28 0 0.40
P/E 13.7 16.6 24 21.5 36
%NM 7% 5% 12% 9% 1.6%
CR 1.4 1.6 1.6 3.4 2.8
Yld 0 0 1.5% 0 0
VAR is Varian Medical. ADAC is ADAC Labs. BCR is CR Bard. OXE is OEC
Medical. SLMD is Spacelab Medical.
CR Bard is the big one, with the multi-billion market cap and standard
big-company numbers. Well managed with all the right ratios. Just
wish it was a little cheaper.
OEC Medical is a turnaround of sorts, and is growing more than VAR.
There's a lot to recommend this stock, but it remains a small player
with more risk than CR Bard. It would have to be cheaper.
Varian is just cheap. World-class tech, and without a lot of direct
compeition in its oncology division. Management is a question mark,
and they don't seem very incentivized to me. 25% of VAR's sales are
in the imaging area - they sell x-ray tubes to most of the world's big
suppliers of x-ray and CT equipment. The funny thing is that all of
these suppliers have their own in-house x-ray tube production. And
they still buy from Varian. In fact, 1/2 of all mammography machines
and 1/4 of all CAT scanners contain Varian tubes! This is both a
threat and a commendation. I view these sales as stable with mild
growth potential.
The oncology group is what's growing, and there's a
software/information technology component to it. The model is akin to
IBM's software for its mainframes. There is an opportunity for
further service revenue via software updates.
For having a ratio analysis that's as good as it is, VAR seems to
trade at a discount to its peers. And it earns a very decent ROE
given its industry. That ROE is probably protected to a degree thanks
to market position/the Varian brand.
Where's the margin of safety? VAR is only growing its top line around
7%, and the results are lumpy. The wild card is the ability to cut
costs and revamp operations now that VAR is free on its own. I see
this as a limited opportunity. Cap ex will remain around 2.5% of
sales, and the opportunity for margin expansion by cutting is probably
capped somewhere below 10%. The real growth will have to keep coming
form the oncology division.
Threats are mainly financial in nature, with reimbursement and a
shrinking health care pie the big issues. This is the reason for the
slump throughout the health care sector.
Still, I'm looking at putting together a mini-portfolio of biotech,
medical device, and care companies as these cos continue to get
cheaper, and VAR would be a nice core holding. I haven't bought
anything yet.
And if one is worried about antiangiogenesis drugs curing cancer, buy
a tiny dollop of ENMD to pair to a full position in VAR. If this
hypothesis is even halfway correct, the ENMD profits will more than
make up for any loss in VAR.
Good investing,
Mike |
