Varex Imaging: Varian Medical Spinoff Undervalued due to Temporary Factors

Samir Mohamed presented his in-depth investment thesis on Varex Imaging (Nasdaq: VREX) at Best Ideas 2018.

Varex Imaging was spun off from Varian Medical Systems in January 2017. The company is a supplier of components and subsystems for medical and industrial X-ray imaging systems to OEM customers like GE Healthcare. Varex is a market leader in an oligopolistic market and has several competitive moats.

The company had declining sales and profit margins in 2015 and 2016 due to temporary factors, which leads investors to underestimate the future sales growth and profit margin potential. It has started adding local OEMs to address the large market potential in China. A shift from analogue X-ray detection technologies to digital detectors is likely to drive organic sales growth to 7-9% annually for years, as digital technology has only reached 30% penetration globally in 2016.

With an expected P/E multiple of 10x for 2020, the stock has 60-100% upside.

About the instructor:

Samir Mohamed started with value investing in 1999 and manages a private family fund full time since 2016. He focuses on good businesses with temporary problems and suppressed stock prices. He is covering a broad range of industries except financial services. Samir enjoys collaborating with other value investors regularly via in-person meetings and Skype calls. Previously, he worked for industrial companies in market research, innovation and product management. He holds a master’s degree in innovation and technology management from the Swiss Federal Institute of Technology (ETH Zurich).

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