Amid COVID-19 Pressures, Accuray Looks Toward The Start Of Its China Ramp

Over the years there has been a dominant theme Accuray (ARAY) – just wait a little longer and the business will start ramping up. Whether it was the latest system innovation, new clinical studies, a change in reimbursement, supplanting aged rival systems, or the China opportunity, there’s always been something just on the horizon that was going to drive revenue inflection. For the last seven years, though, revenue has been stuck in a $50 million band between $369 million and $419 million, while rival Varian (VAR) has seen core oncology system growth of around 5%/year, and the shares have continued to glide down.

I’ve said before that I believe current Accuray management has done more to improve the business than is reflected in the share price, and I still believe that. But with the company on the cusp of revenue recognition from its Type A license backlog in China, I don’t expect much patience from the Street if this doesn’t finally light the fuse on a more meaningful and lasting revenue ramp (and operating leverage).

I continue to model Accuray on the assumption of revenue acceleration from virtually no growth over the last six years (below 1%/year) to around 6% on an annualized basis. That level of growth should put the company on a path to double-digit FCF margins down the line, and it should likewise support a near-term fair value in the mid-to-high single-digits. Even so, this is a company that has been a serial disappointment, and while it may be different this time, that’s typically not a winning strategy in investing.

 

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Amid COVID-19 Pressures, Accuray Looks Toward The Start Of Its China Ramp