Varian Medical Systems, Inc.

VAR Details

VAR Inks Deal with Siemens: Varian Medical Systems, Inc. (NYSE: VAR) is engaged in providing radiotherapy, radiosurgery, proton therapy and brachytherapy for curing cancer and other medical conditions. Recently, the company inked a definitive agreement with Siemens Healthineers AG in an all-cash transaction of $16.4 billion. As per the deal, Siemens Healthineers will buy all outstanding shares of VAR for $177.50 per share in cash, demonstrating a premium of ~24% on the closing price of VAR’s common stock as at July 31, 2020.

A Look at VAR’s Q3FY20 Key Highlights: During the quarter, the company reported non-GAAP earnings per share (EPS) of 78 cents, down 41% year over year. The company reported revenues of $694.3 million, down 16% year over year and 15% at Constant Currency (CC). Organically, revenues fell by 19%. Revenues from oncology systems stood at $654 million, which declined 17% year over year. Orders in the United States fell 8% year over year, owing to a 6% decline in North America. In EMEA, orders declined 32% year over year, whereas in APAC, orders were up 4% year over year. Revenues from proton solutions were up 6% year over year and came in at $33 million, owing to higher service revenues. Research and development expenses increased from $62.1 million in pcp to $65.3 million in Q3FY20. The company exited the quarter with a cash balance of $769 million, with debt amounting to $580 million. Net cash provided by operating activities stood at $83 million.

3QFY20 Key Highlights (Source: Company Reports)

Outlook: Due to global uncertainty led by COVID-19 outbreak, the company has withdrawn its FY20 outlook. However, VAR remains on track to benefit from its core Oncology Systems segment. The company also remains positive about the completed acquisitions of CyberHeart, Cancer Treatment Services International, Endocare and Alicon. Moreover, seven EthosTM orders received in the United States and Europe increases confidence in the stock.

Key Risks: On the flip side, contraction in operating margin and rising expenses remain potential headwinds. Also, the continued impact of the COVID-19 pandemic is likely to impact the top-line and bottom-line in the coming quarters. Stiff competition in the market also adds to the challenges.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of VAR closed at $174.17 with a market capitalization of ~$15.8 billion. The stock made a 52-week low and high of $89.62 and $175.57, respectively, and is currently trading close to its 52-week high. The stock has delivered a positive return of ~42.31% and 56.39% in the last one month and three months, respectively. The company’s 4QFY20 earnings are expected to be announced on 21 October 2020. Debt to equity multiple in Apr’20 stood at 0.29x, higher than the industry median of 0.26x. Considering the above factors, we have valued the stock using the EV/Sales multiple based illustrative relative valuation method and arrived at a price correction of single-digit (in % terms). Hence, considering the above factors, along with returns in the past one and six months, we have a watch stance on the stock at the closing price of $174.17, up 22% on 3^rd August 2020.

VAR Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

Nordic American Tankers Limited

NAT Details 

Declaration of Dividend: Nordic American Tankers Limited (NYSE: NAT) is an international tanker company, with a fleet size of 23 Suezmax crude oil tankers. Recently, the company declared a dividend of 20 cents per share for 2QFY20, payable on September 4, 2020. This depicts a 42% rise from the previous quarter.

1QFY20 Key Highlights: During the quarter, the company reported net voyage revenues of $86.2 million, as compared to $53.6 million reported in the year-ago period. Operating expenses for the period stood at $38.5 million as compared to $35.3 million in pcp. Net gain during the period amounted to $39.5 million as compared to $5.6 million reported in the year-ago quarter. In 1QFY20, the company declared its 91st consecutive quarterly dividend of 14 cents per share, which was paid on June 5, 2020. The company expects 2020 outlook to remains strong. Notably, the company has reduced its long-term debt with ~$20.9 million at the end of March 31, 2020, further strengthening its balance sheet position. The company ended the quarter with a cash balance of $64.3 million. Net cash inflow from operating activities stood at $35.9 million in 1QFY20.

The average Time Charter Equivalent (TCE) during the quarter across its fleet stood at ~$44,100 per day per ship, up ~40% on a sequential basis. The tanker market is set to reveal robust strength and positive developments in 2020.

Key Highlights (Source: Company Reports)

Key Risks: The coronavirus is grabbing the front-page, which remains a potential headwind in the short-term. Further, rise and fall in ship rates, stiff competition and fluctuation in foreign currency exchange rates add to the woes.

Outlook: The company is taking necessary measures to expand and maintain a regular and top-quality fleet, by continuing close customer relationships with major oil companies. The company remains focused on hiring its ships with major oil companies. Further, the company has a healthy balance sheet, which is aiding NAT to distribute free cashflow to its shareholders. The company further focuses on developing its fleet of tankers in a cautious and transparent way.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of NAT closed at $4.48 with a market capitalization of ~$659.6 million. The stock made a 52-week low and high of $1.66 and $9.00, respectively, and is currently trading below the average of its 52-week trading range. The stock has delivered a positive return of ~10.34% in the last one month. The company’s 2QFY20 earnings are scheduled to be announced on 14 August 2020. Debt to equity multiple in Mar’20 stood at 0.65x, lower than the industry median of 0.88x. Considering the above factors, we have valued the stock using a P/E multiple based illustrative relative valuation method and arrived at a target price of lower double-digit upside (in % terms). For the purpose, we have taken the peer group - SFL Corporation Ltd (NYSE: SFL), GasLog Ltd (NYSE: GLOG), Scorpio Tankers Inc (NASDAQ: STNG), to name few. Considering the decent price movement in the stock, current trading levels, valuation, and decent outlook, we give a “Buy” recommendation on the stock at the closing price of $4.48, down 1.54% on 3^rd August 2020.

NAT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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