On Friday, B.Riley initiated coverage on Varex Imaging (NASDAQ:VREX) stock, a prominent designer and manufacturer of X-ray components, with a Buy rating and a price target of $21.00.
The firm highlighted the company's expertise in creating highly complex components that can endure extreme conditions as a competitive advantage.
Varex Imaging is recognized for its contributions to medical diagnostic imaging, security inspection systems, and various industrial applications. The company has recently navigated through significant macroeconomic challenges, including issues specific to China and industry destocking trends.
Despite these challenges, B.Riley anticipates that the current headwinds will shift to tailwinds by 2025, presenting an attractive opportunity for the company.
This positive outlook is supported by the current valuation of Varex Imaging's stock, which trades at 0.8 times its estimated enterprise value to 2025 sales (EV/2025E sales) and 7.0 times its estimated enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA). These figures are favorable when compared to the company's peers, which trade at an average of 2.6 times and 11.7 times, respectively.
The analyst's statement underlines the belief in Varex Imaging's potential for growth and recovery, positioning it as an attractive investment with a compelling setup for the coming years. The price target of $21.00 reflects this optimism and the anticipated improvement in the company's financial performance.
In other recent news, Varex Imaging Corporation reported mixed third-quarter financial results for the fiscal year 2024. The company's revenue declined by 10% compared to last year's period, with the Medical segment experiencing a significant 15% decrease.
Conversely, the Industrial segment reported a 6% increase in revenue. Despite the challenges in the Chinese market and increased competition from Asia-based manufacturers, Varex ended the quarter with a strong cash position of $192 million.
Looking ahead, Varex anticipates gradual improvements in fiscal year 2025. While the company expects the China business to remain at low levels due to ongoing audits and uncertainties, the Industrial sector is projected to perform well, particularly in cargo.
Varex also revealed optimism regarding its cost-cutting initiatives and investments in India, which are aimed at regaining market share in radiographic and dental areas.
Among recent developments, the company is considering refinancing options for convertible bonds maturing in June 2025. Varex's management remains focused on navigating current challenges and capitalizing on future growth opportunities, including product innovation and market expansion.
InvestingPro Insights
In light of B.Riley's optimistic coverage of Varex Imaging (NASDAQ:VREX), recent data from InvestingPro offers additional insights into the company's financial health and market performance. Varex Imaging currently holds a market capitalization of approximately $472.35 million, with a P/E ratio of 13.82, signifying investor expectations of future earnings. Notably, the company's adjusted P/E ratio for the last twelve months as of Q3 2024 stands at a lower 10.69, potentially indicating a more favorable valuation in the eyes of some investors.
Despite a recent downturn in stock price, with a one-week total return of -8.25%, Varex Imaging's financials reveal a strong free cash flow yield, as highlighted by one of the InvestingPro Tips. This could suggest an attractive entry point for investors looking for companies with solid cash generation abilities. Additionally, the company has liquid assets that exceed its short-term obligations, which may provide a cushion against current market volatility.
Another InvestingPro Tip points out that the company's valuation implies a strong free cash flow yield, which is an important metric for investors seeking companies with the ability to generate cash after funding operations and capital expenditures. Moreover, with analysts predicting profitability for the current year and the company having been profitable over the last twelve months, there appears to be a foundation for potential growth.
For those interested in a deeper dive into Varex Imaging's prospects, InvestingPro offers numerous additional tips to guide investment decisions. To explore further, visit the dedicated page at https://www.investing.com/pro/VREX for a comprehensive analysis.
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