Varian Medical Systems (VAR:NYS) Fundamental Valuation Report


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Varian Medical Systems $111.53 (USD) Close Price as of 11/01/2018

Based on the analysis conducted in this report, Varian Medical Systems, (VAR:NYS) is found to be  Overvalued.

Company Varian Medical Systems
Symbol:Exchange VAR:NYS
Industry Healthcare:Medical Devices
Close Price/Date $111.53 (USD) 11/01/2018
Weighted Average Valuation $105.81 (USD)
Summary VAR:NYS is found to be  Overvalued by 5.1% using the 3 valuation models shown below.
Valuation Models Used Analyst Consensus: $102.50 (USD)
(in order of importance) Comparables: $122.63 (USD)
Adjusted Book Value: $82.13 (USD)
Valuation Methods Analysis This company is:
Cash Flow Basis: Overvalued on a Cash Flow Valuation basis
Comparable Company Basis: Undervalued on a Comparable Valuation basis
Asset Basis: Overvalued on an Asset Valuation basis

Valuation Details

Varian Medical Systems Valuations

Summary chart

 We have up to 6 valuation points for each company. Details are at the bottom of the report.

Discounted Cash Flow and Sensitivity Analysis for VAR:NYS

Using a discounted cash flow model we generated an intrinsic value of $72.06 (USD) for VAR:NYS

Sensitivity Analysis

(showing how changes in the input variables impact the DCF calculation)

VAR:NYS Current Values Valuation If Dropped * Valuation If Raised *
Calculated Value: $72.06 1% 5% 1% 5%
WACC (or Ke) 7.61 $92.32 $58.56
Terminal Growth Rate 2.60 $59.64 $90.69
Tax Rate 0.25 $78.93 $65.20
Cash Flow 742,615,985 $66.51 $77.62
Capital Expenditures -79,362,000 $71.50 $72.63
Long Term Debt 701,441,000 $72.45 $71.68

* Changes are absolute: ex WACC from 8% to 7%

Comparables Model

Using similar companies and price based ratios we generated a valuation of $122.63 (USD) for VAR:NYS. We also generated a valuation of $110.17 (USD) using other metrics and comparables.
The comparable companies were Align Technology (ALGN:NAS), Globus Medical (GMED:NYS), Masimo (MASI:NAS), Penumbra (PEN:NYS) and Teleflex (TFX:NYS)

Company VAR:NYS End Date Value
Earnings/Share $2.68 (USD)
Book Value/Share $16.35 (USD)
Sales/Share $28.63 (USD)
Cash Flow/Share $4.28 (USD)
EBITDA/Share $4.64 (USD)
Price Based on Comps Adjustment Factor (%)
$118.68 (USD) -59.1
$133.18 (USD) 24.7
$253.71 (USD) -4.8
$135.15 (USD) -41.6
$126.07 (USD) -38.1
VAR:NYS Ratios Used Average Values ALGN:NAS GMED:NYS MASI:NAS PEN:NYS TFX:NYS
40.56 PE Ratio 44.28 76.64 39.91 13.45 0.00 47.14
6.82 PB Ratio 8.15 17.16 4.52 6.18 8.13 4.75
3.90 PS Ratio 8.86 15.35 6.99 6.30 9.77 5.90
26.05 PCF Ratio 212.55 57.82 25.88 14.10 936.49 28.45
22.74 EV to EBITDA 27.98 56.59 19.44 8.86 0.00 27.03

Multiples

Using a multiples approach we generated a valuation of  $75.71 (USD) for VAR:NYS

Company VAR:NYS End Date Value
Earnings/Share $2.68 (USD)
Book Value/Share $16.35 (USD)
Sales/Share $28.63 (USD)
Cash Flow/Share $4.28 (USD)
EBITDA/Share $4.64 (USD)
Price Based on Comps Adjustment Factor
$60.43 (USD) 0
$82.34 (USD) 0
$81.49 (USD) 0
$92.67 (USD) 0
$61.60 (USD) 0
Ratios Ratio Average
PE Ratio 22.55
PB Ratio 5.04
PS Ratio 2.85
PCF Ratio 21.64
EV to EBITDA 13.28

Adjusted Book Value versus Historical Price to Book

The average the Price to Book ratio for  VAR:NYS for the last 10 years was  5.04

We ran the Adjusted Book Value for  VAR:NYS and generated a book value of  $16.30 (USD)
By multiplying these we get an adjusted valuation of  $82.13 (USD)

Analyst Data

In the Stockcalc database there are 2 analysts that provide a valuation for VAR:NYS. The 2 analysts have a concensus valuation for VAR:NYS for 2018 of $102.50 (USD).

VAR:NYS Varian Medical Systems

Analyst Recommendation
Buy Hold Sell Rating
(of 5)
Guidance As Of
0 3 1 2.5000 Underperform 2018-1-10

Current Price: not available

Analyst Consensus
USD Millions 2018 2019
Mean EPS 4.48 4.55
# EPS Analysts 2 1
Mean Revenue 2,793.20 2,831.70
# Revenue Analysts 2 1
Mean Target Price 102.50
Mean Cash Flow 5.13
Mean EBITDA 618.60 676.00
Mean Net Income 439.10
Mean Debt Outstanding
Mean Tax Rate 23.00 24.00
Mean Growth Rate 7.21
Mean Capital Expenditure 82.60 90.00

Company Overview (VAR:NYS USD)

Price 103.19
Range 102.83 – 103.91
52 week 76.57 – 112.93
Open 102.91
Vol / Avg. 1.02M/4.49M
Mkt cap 9.46B
P/E 29.15
Div/yield 0.00/0.00
EPS 0.98
Shares 91.7M
Beta 0.82
Summary chart

Detailed Company Description

Varian Medical Systems Inc is engaged in the healthcare sector. It manufactures medical devices for conditions with radiotherapy, radiosurgery, proton therapy and brachytherapy.

Explanation of Valuation Models

We have up to 6 valuation points for each company in the database.
The Discounted Cash Flow (DCF) valuation is a cash flow model where cash flow projections are discounted back to the present to calculate value per share. DCF is a common valuation technique especially for companies undergoing irregular cash flows such as resource companies (mining, forestry, oil and gas) going though price cycles or smaller companies about to generate cash flow (junior exploration companies, junior pharma, technology firms…).
The Price Comparables valuation is the result of valuing the company we are looking at on the basis of ratios from selected comparable companies: Price to Earnings, Price to Book, Price to Sales, Price to Cash Flow, Enterprise Value (EV) to EBITDA. Each of these ratios for the selected comparable companies are averaged and multiplied by the values for the company we are interested in to calculate a value per share for our selected company.
We have included the Other Comparables as a way to value companies that cannot be valued using Earnings based ratios. This technique is very useful for companies still experiencing negative cash flows such as mining exploration firms. We use Cash/Share, Book Value/Share, MarketCap, 1 Year Return, NetPPE as the ratios here. Each of these ratios for the selected comparable companies are averaged and multiplied by the values for the company we are interested in to calculate a value per share for our selected company.
Multiples are similar to Price comparables where we look at current or historic ratios for the company in question to assess what it should be worth today based on those historic ratios. We use the same 5 ratios as in the price comparables and value the company with its historic averages.
With Adjusted Book Value (ABV) we calculate the book value per share for the company based on its balance sheet and multiply that book value per share by its historical price to book ratio to calculate a value per share.
If we have Analyst coverage for the company we use the consensus target price here.

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