Accuray Incorporated ARAY is well-poised for growth in the coming quarters, courtesy of continued robust demand for its products. The optimism, led by robust international performance in the first quarter of fiscal 2025 and potential in the Radiosurgery Market, is expected to contribute further. However, reimbursement uncertainties and macroeconomic instability are concerning.
This Zacks Rank #2 (Buy) company has gained 28.2% in the year-to-date period compared with 1.6% growth of the industry. The S&P 500 has witnessed 7.3% growth in the said time frame.
The renowned radiation oncology company has a market capitalization of $220.2 million. Accuray projects 106.3% growth for fiscal 2025 and expects to maintain its strong performance going forward. The company has a P/S ratio of 0.5X compared with the industry’s 4.4X.
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Reasons Favoring Accuray’s Growth
Potential in Radiosurgery Market: Accuray’s CyberKnife System is a robotic radiosurgery system capable of treating tumors throughout the body. An extensive body of published literature supports its use in the treatment of various targets, including cancers, benign tumors, or functional diseases. With more than two decades of clinical evidence, the CyberKnife System offers distinct advantages in the treatment of diseases in the head, base of the skull and spine.
In December, ARAY announced positive data from an international multicenter analysis, showing that the CyberKnife System delivers effective and time-efficient treatment for brainstem metastases.
During the fiscal first quarter, management commented on the strong customer adoption of the CyberKnife system. Per management, installation activity of the CyberKnife and Radixact systems was robust during the first quarter of fiscal 2025, with 22% growth in new installations year over year. By achieving above-market new order growth, order backlog was built in the Chinese market.
Rising Product Demand in China: Accuray is witnessing improved customer reception of its technologies globally. Tomo C system is likely to expand ARAY’s product portfolio in China, allowing ARAY to compete in the largest and fastest-growing segment of the China radiotherapy market. During the fourth quarter of fiscal 2024, the company received the Precision Treatment Planning System in China for use with the Tomo C radiation therapy system.
Management also commented on the China team's ability to ramp up manufacturing production of the Tomo C systems at the Tianjin facility. Per management, these systems are likely to be shipped over the next several quarters based on customer timing, with the majority expected in the second quarter through the fourth quarter of fiscal 2025.
Strong International Revenue Growth: Accuray’s products have registered robust customer adoption over the past few months. During the fiscal first quarter, Accuray witnessed impressive demand for its products in China, delivering significant revenue growth of 30% year over year.
Per the fiscal first-quarter earnings call, the customer base grew 4% year over year in EIMEA (Europe, India, the Middle East and Africa) and 3% in Japan, which is likely to increase the installed base in those regions and drive future recurring service and upgrade revenue opportunities. The company expects both regions to show stronger revenue growth in the second half of fiscal 2025, driven by visibility to customer timing and additional commercial coverage.
Factors That May Offset the Gains for ARAY
Macroeconomic Instability: Accuray’s business is materially affected by global market conditions and the overall economy. Additionally, uncertain credit markets and apprehensions regarding the availability of credit, including concerns related to the pandemic, could affect customer demand for Accuray’s products and its ability to manage normal commercial relationships with its customers, suppliers and creditors. If the current situation deteriorates or does not improve, the company’s business could be affected by factors such as reduced demand for its products resulting from a slowdown or volatility in the general economy, among others.
Reimbursement Uncertainties: ARAY’s customers rely significantly on reimbursement from public and private third-party payors for the CyberKnife and TomoTherapy platform procedures. The company’s ability to commercialize its products successfully and increase market acceptance of the same will significantly depend on the extent to which public and private third-party payors provide adequate coverage and reimbursement for procedures that are performed using its products. It also depends on the extent to which patients treated using its products continue to be covered by health insurance. Third-party payors may establish or change the reimbursement for medical products and services that could significantly influence the purchase.
Accuray has been witnessing a stable estimate revision trend for fiscal 2025. Over the past 30 days, the Zacks Consensus Estimate for earnings has remained stable at 1 cent per share.
The Zacks Consensus Estimate for second-quarter fiscal 2025 revenues is pegged at $110.9 million, suggesting a 3.5% improvement from the year-ago reported number.
Other Key Picks
Some other top-ranked stocks in the broader medical space are Cardinal Health, Inc. CAH, ResMed Inc. RMD and Boston Scientific Corporation BSX.
Cardinal Health, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 10.2%. CAH’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 11.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Cardinal Health’s shares have gained 25.3% compared with the industry’s 3.2% growth in the past six months.
ResMed, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 14.8%. RMD’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 6.4%.
ResMed has gained 22.6% compared with the industry’s 9.1% growth in the past six months.
Boston Scientific, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 13.8%. BSX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 8.3%.
Boston Scientific’s shares have rallied 20.9% compared with the industry’s 9.1% growth in the past six months.
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