Tuesday, September 25, 2007

Accuray (NASDAQ:ARAY): Jeffco positive

- Jefferies is out very positive on Accuray (NASDAQ:ARAY) saying the stock has the best risk/reward profile in firm's universe and that they think this is the time to buy.

According to the firm, Accuray's CyberKnife and Elekta's GammaKnife are designed specifically for SRS (stereotactic radiosurgery) due to their sub-millimeter accuracy and ability to deliver higher intensity doses of radiation to a much more precise area, far superior for inoperable tumors (based on the opinions of physicians they have spoken to). ARAY's system for SRS commands ~$17K for 3-5 treatments or 9x the reimbursement rate IMRT/IGRT generates per fraction, a significant benefit for ARAY.

Jeffco notes that a competitor has been incorrectly estimating CyberKnife new orders over the past two quarters causing a lot of undue pressure on the stock. Based on discussions with management, they are confident that the number of new system orders in FY3Q was ~ 2x that of the copetitor's estimate (or ~19 systems, which ultimately led this competitor to correct his calculation). In addition, this same competitor recently calculated 15 new orders in FY4Q, while management states that they actually had ~30 new orders. Therefore, the firm continues to believe that with a doubling of orders from FY3Q to FY4Q and strong backlog growth, ARAY continues to see tremendous demand for its system.

They believe trends are strong and would be buyers of the stock in front of ARAY's first ever analyst day on October 4th in Las Vegas. Reits Buy and $29 tgt.

Notablecalls: Do check out ARAY's technology as the CyberKnife device looks really groundbreaking. The backlog is just huge, indicating strong demand for the device. The reimbursement climate seems to be favourable as most of the claims (over 90%) for CyberKnife procedures are reimbursed.

The installation rate has not matched the most optimistic estimates lately and this is the primary reason why investors can buy the stock way down. Given the tech/cost advantage ARAY's CyberKnife offering, I do think it is only a matter of time when things will speed up.

Management issued a $25 mln buyback right after the recent slide, with one director stepping up and personally buying 100K shares @ $13.82 3 weeks ago.

The chart looks like the stock is forming a bottom and I suspect Jeffco's strongly worded call will push it higher over the n-t.

1 comment:

Hotlips said...

Expansion excluded manufacturing which one wouldn't expect with their huge backlog? How will they live-up to their orders?