Varex Imaging Corporation (NASDAQ: VREX), a key player in the healthcare sector’s medical devices industry, presents a compelling case for investors with its substantial potential upside of over 116%. Headquartered in Salt Lake City, Utah, Varex designs, manufactures, and sells critical X-ray imaging components, servicing both medical and industrial markets globally. Despite some challenges, the company’s strategic positioning and analyst confidence suggest intriguing investment potential.
At a current price of $7.67, Varex’s stock is trading near the lower end of its 52-week range of $6.88 to $16.68. This presents an attractive entry point for investors, especially considering the average analyst target price of $16.60. The potential upside is reinforced by the absence of any sell ratings, with four analysts advocating a buy and one recommending a hold.
Varex operates through two main segments. The Medical segment provides X-ray imaging components for various applications including CT, mammography, and oncology, while the Industrial segment serves security and inspection markets. The company’s global operations span North America, South America, Europe, and Asia, positioning it well to leverage growth opportunities across diverse regions.
Financially, Varex shows a mixed picture. The company reported a modest revenue growth of 3.2%, yet its earnings per share (EPS) stand at a negative $1.03, and return on equity is at -7.17%. These figures highlight areas for improvement, particularly in profitability. However, the company’s free cash flow of $53.39 million offers some financial flexibility to invest in growth initiatives or manage debt.
The valuation metrics raise some questions, with the trailing P/E ratio and PEG ratio not applicable, suggesting the company has not been profitable over the trailing period. However, a forward P/E of 10.30 indicates that analysts expect earnings improvements moving forward, aligning with the optimistic price targets.
From a technical analysis perspective, Varex’s stock exhibits some neutrality. The 50-day moving average is at $7.98, slightly above the current price, while the 200-day moving average is significantly higher at $11.89, indicating potential for recovery if broader market conditions improve. The relative strength index (RSI) at 54.65 suggests the stock is neither overbought nor oversold, providing a balanced outlook for potential investors.
Dividend-seeking investors might note the absence of a dividend yield, with a payout ratio of 0%. This is typical for companies reinvesting earnings to fuel growth, rather than returning cash to shareholders.
Varex’s strategic growth potential, coupled with its significant upside, presents a compelling opportunity for investors willing to navigate the inherent risks of a turnaround scenario. While the company faces challenges in profitability and valuation clarity, its robust cash flow and critical role in the healthcare imaging sector offer foundational strengths. Investors should weigh these factors against the broader economic context and their individual risk tolerance when considering Varex Imaging Corporation as a potential addition to their portfolio.
