We recently initiated coverage on Varian Medical Systems, Inc. (VAR) with a Neutral recommendation. We rate the stock as Neutral with a target price of $50 based on a P/E of roughly 18.6x our fiscal 2010 EPS estimate.

Varian reported fourth-quarter earnings per share of 78 cents, surpassing the Zacks Consensus Estimate of 75 cents and the year-ago earnings of 68 cents. Total revenues in the fourth quarter increased 8% year over year to $642 million, with growth witnessed across all the major business segments. Net orders increased 4% year over year to $755 million.

In full fiscal 2009, Varian reported earnings per share of $2.65, ahead of the Zacks Consensus Estimate of $2.62 and the year-ago earnings of $2.31. Total revenues increased 7% year over year to $2,214.1 million. Growth was witnessed across all the major business segments. Net orders increased 3% year over year to $2.4 billion. Total backlog at the end of 2009 was $2.1 billion, an increase of 9% over fiscal 2008.

Varian provided revenues and earnings guidance for the first quarter and full fiscal 2010. For the first quarter, revenues are expected to increase 3% to 4% year over year. Earnings per share are projected in the range of 52 cents to 56 cents.

For fiscal 2010, revenues should increase by 4% to 5% year over year. Earnings per share should range between $2.65 and $2.75.

We might reconsider our Neutral recommendation based on Varian’s performance in the next quarter.

Varian is the world’s leading manufacturer of integrated radiotherapy systems used for treating cancer and a premier supplier of X-ray tubes for diagnostic imaging applications.

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