TOMO Tomotherapy Incorporated (MM)

We downgrade our recommendation for leading radiosurgery systems maker Accuray Incorporated (ARAY) to Neutral following our assessment of its lukewarm third-quarter fiscal 2011 results which missed the Zacks Consensus Estimates. The company turned in a loss for the quarter as higher revenues were more than offset by hefty acquisition charges.

Sales rose 5% year over year in the quarter owing to higher product and service revenues. The California-based company once again backed its revenue forecast for fiscal 2011, which is expected between $210 million and $225 million.

Accuray is a global leader in the field of radiosurgery and provides a non-surgical treatment option for patients diagnosed with cancer. The company continues to enjoy healthy demand for its CyberKnife robotic radiosurgery systems. More than 100,000 people have been already treated with CyberKnife globally. Accuray booked 13 orders for the device in the third quarter.

Accuray’s CyberKnife system boasts of a technology that differentiates it from traditional treatments. CyberKnife, a non-invasive alternative to conventional surgery, is the first and only commercially available intelligent robotic radiosurgery system designed to treat solid tumors anywhere in the body.

The company is pursuing a number of strategies to boost CyberKnife’s adoption. As part of these efforts, it has formed a new functional organization dubbed “Medical Affairs” in an effort to boost data collection and utilization of the device.

Accuray is expected to benefit from the recent recovery in hospital capital equipment spending. Moreover, the company is well placed to bolster its foothold in the radiation oncology market with its acquisition of rival TomoTherapy (TOMO).

However, Accuray remains susceptible to reimbursement uncertainties surrounding its products and its CyberKnife system faces stiff challenge from competitive product offerings of Varian Medical (VAR).

Moreover, a sizable sales deficit (resulting from lower deferred revenues from the CyberKnife systems sold under the legacy Platinum multi-year service plan) may be a drag on the top and bottom lines for fiscal 2011.

 
ACCURAY INC (ARAY): Free Stock Analysis Report
 
TOMOTHERAPY INC (TOMO): Free Stock Analysis Report
 
VARIAN MEDICAL (VAR): Free Stock Analysis Report
 
Zacks Investment Research