Varian Medical Systems Inc. Valuation – November 2015 Update $VAR

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – October 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Varian Medical Systems Inc. (VAR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Varian Medical Systems Inc. is a manufacturer of medical devices and software for treating cancer and other medical conditions with radiotherapy, radiosurgery, proton therapy and brachytherapy. The Company is a supplier of X-ray imaging components for medical, scientific, and industrial applications and supplies X-ray imaging products for cargo screening and industrial inspection. The Company offers tools for fighting cancer, taking X-ray images and protecting ports and borders. The Company’s products include linear accelerators, brachytherapy afterloaders, treatment simulation and verification equipment, accessories, information management, treatment planning and image processing software. The Company’s customers include university research and community hospitals, private and governmental institutions, healthcare agencies, doctors’ offices and cancer care clinics.


To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of VAR – November 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $7,823,307,192 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.83 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 87.21% Pass
6. Moderate PEmg Ratio PEmg < 20 19.34 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.60 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.83 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.30 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

VAR value Chart November 2015

EPSmg $4.10
MG Growth Estimate 4.11%
MG Value $68.48
Opinion Overvalued
MG Value based on 3% Growth $59.42
MG Value based on 0% Growth $34.83
Market Implied Growth Rate 5.42%
Current Price $79.25
% of Intrinsic Value 115.72%

Varian Medical Systems Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, lack of dividends, and the high PB ratio.  The Enterprising Investor is only concerned with the lack of dividends.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $3.22 in 2012 to an estimated $4.10 for 2016.  This level of demonstrated earnings growth does not support the market’s implied estimate of 5.42% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Varian Medical Systems Inc. (VAR)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

VAR Charts November 2015

Net Current Asset Value (NCAV) $6.40
Graham Number $41.17
PEmg 19.34
Current Ratio 1.83
PB Ratio 4.60
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0



Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $2,525,045,000
Total Current Liabilities $1,382,904,000
Long-Term Debt $337,500,000
Total Assets $3,600,748,000
Intangible Assets $283,452,000
Total Liabilities $1,889,148,000
Shares Outstanding (Diluted Average) 99,300,000

Earnings Per Share History

Next Fiscal Year Estimate $4.38
Sep15 $4.09
Sep14 $3.83
Sep13 $3.98
Sep12 $3.76
Sep11 $3.36
Sep10 $2.91
Sep09 $2.55
Sep08 $2.19
Sep07 $1.83
Sep06 $1.81
Sep05 $1.50
Sep04 $1.18
Sep03 $0.92
Sep02 $0.67
Sep01 $0.40
Sep00 $0.41
Sep99 -$0.20
Sep98 $0.61
Sep97 $0.92
Sep96 $0.95

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.10
Sep15 $3.91
Sep14 $3.73
Sep13 $3.56
Sep12 $3.22
Sep11 $2.82
Sep10 $2.45
Sep09 $2.14
Sep08 $1.86
Sep07 $1.61
Sep06 $1.41
Sep05 $1.11
Sep04 $0.85
Sep03 $0.60
Sep02 $0.42
Sep01 $0.34
Sep00 $0.39

Recommended Reading:

Other ModernGraham posts about the company

The Best Companies of the Medical Industry – September 2015
The 20 Best Stocks For Value Investors This Week – 8/15/15
Varian Medical Systems Inc Analysis – August 2015 Update $VAR
47 Companies in the Spotlight This Week – 5/16/15
Varian Medical Systems Inc. Quarterly Valuation – May 2015 $VAR

Other ModernGraham posts about related companies

Psychemedics Corporation Valuation – November 2015 Update $PMD
C.R. Bard Inc. Valuation – November 2015 Update $BCR
Henry Schein Inc. Valuation – October 2015 Update $HSIC
Medtronic PLC Valuation – October 2015 Update $MDT
PerkinElmer Inc. Analysis – October 2015 Update $PKI
Quest Diagnostics Inc. Analysis – October 2015 Update $DGX
Stryker Corporation Analysis – October 2015 Update $SYK
The Best Companies of the Medical Industry – September 2015
Zimmer Biomet Holdings Inc. Analysis – September 2015 Update $ZBH
Zimmer Biomet Holdings Inc. Analysis – September 2015 Update $ZBH


The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.






Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.