Varian Medical Systems: 5 Different Insiders Have Sold Shares During The Last 30 Days

Jan.16.14 | About: Varian Medical (VAR)

In this article, I will feature one healthcare stock that has seen intensive insider selling during the last 30 days. Intensive insider selling can be defined by the following three criteria:

  1. The stock was sold by three or more insiders within one month.
  2. The stock was not purchased by any insiders in the month of intensive selling.
  3. At least two sellers decreased their holdings by more than 10%.

Varian Medical Systems (NYSE:VAR) designs, manufactures, sells, and services medical devices and software for treating cancer and other medical conditions with radiotherapy, radiosurgery, proton therapy, and brachytherapy worldwide.

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Insider selling during the last 30 days

Here is a table of Varian's insider-trading activity during the last 30 days by insider.

Name Title Trade Date Shares Sold Rule 10b5-1 Current Ownership Decrease In Ownership
Kolleen Kennedy SVP Jan 9 775 Yes 6,236 shares + 17,065 options 3.2%
Elisha Finney CFO Jan 2 24,321 Yes 26,434 shares + 36,000 options 28.0%
Richard Levy Director Jan 2 20,000 Yes 28,907 shares + 45,000 options 21.3%
John Kuo SVP Dec 30 3,027 Yes 15,257 shares + 6,662 options 12.1%
Clarence Verhoef SVP Dec 23 1,297 Yes 1,908 shares 40.5%
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There have been 49,420 shares sold by insiders during the last 30 days. All these shares were sold pursuant to a Rule 10b5-1 plan.

SEC Rule 10b5-1 is a regulation enacted by the United States Securities and Exchange Commission (SEC) in 2000. The SEC states that Rule 10b5-1 was enacted in order to resolve an unsettled issue over the definition of insider trading, which is prohibited by SEC Rule 10b-5. After Rule 10b5-1 was enacted, the SEC staff publicly took the position that canceling a planned trade made under the safe harbor does not constitute insider trading, even if the person was aware of the inside information when canceling the trade. This staff interpretation raises the possibility that executives can exploit this safe harbor by entering into 10b5-1 trading plans before they have inside information while retaining the option to later cancel those plans based on inside information.

For example, a CEO of a company could call a broker on January 1 and enter into a plan to sell a particular quantity of shares of his company's stock on March 1, find out terrible news about his company on February 1 that will not become public until April 1, and then go forward with the March 1 sale anyway, saving himself from losing money when the bad news becomes public. Under the terms of Rule 10b5-1(b) this is insider trading because the CEO "was aware" of the inside information when he made the trade. But he can assert an affirmative defense under Rule 10b5-1(c), because he planned the trade before he learned the inside information.

In general, it is a safer way for an insider to sell shares pursuant to a Rule 10b5-1 trading plan than without it.

Insider selling by calendar month

Here is a table of Varian's insider-trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
January 2014 45,096 0
December 2013 153,562 0
November 2013 76,636 0
October 2013 58,401 0
September 2013 96,549 0
August 2013 55,775 0
July 2013 28,844 0
June 2013 52,000 0
May 2013 30,019 0
April 2013 27,671 0
March 2013 128,917 0
February 2013 16,908 0
January 2013 116,434 0
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There have been 886,812 shares sold, and there have been zero shares purchased by insiders since January 2013. The month of December has seen the most insider selling.

Financials

Varian reported the fiscal 2013 full-year, which ended September 27, financial results on October 23 with the following highlights:

Revenue $2.9 billion
Net income $438.2 million
Cash $1.2 billion
Debt $506.3 million
Backlog $2.9 billion
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(Source: Earnings presentation)

Outlook

Varian's guidance is as follows:

Q1/2014 FY2014
Revenue growth 6%-7% 6%-8%
EPS $0.87-$0.91 $4.22-$4.34
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(Source: Earnings presentation)

Competition

Varian's competitors include Accuray (NASDAQ:ARAY), and Elekta AB (OTCPK:EKTAF). Here is a table comparing these companies.

Company VAR ARAY EKTAF
Market Cap: 8.56B 661.12M 5.72B
Employees: 6,400 989 N/A
Qtrly Rev Growth (yoy): 0.02 -0.07 -0.02
Revenue: 2.94B 309.87M 1.58B
Gross Margin: 0.42 0.32 N/A
EBITDA: 678.45M -40.03M 335.08M
Operating Margin: 0.21 -0.20 N/A
Net Income: 438.25M -90.96M 188.56M
EPS: 3.98 -1.28 0.49
P/E: 20.34 N/A 30.82
PEG (5 yr expected): 1.60 0.06 1.73
P/S: 2.92 2.13 3.63
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Varian has the second-highest P/S ratio among these three companies. In Accuray, there have been 27,793 shares sold, and there have been 120,000 shares purchased by insiders since January 2013. Only Varian has seen intensive insider selling during the last 30 days.

Conclusion

There have been five different insiders selling Varian, and there have not been any insiders buying Varian during the last 30 days. Four of these five insiders decreased their holdings by more than 10%. Varian has an insider ownership of 0.10%.

Before entering short Varian, I would like to get a bearish confirmation from the Point and Figure chart. The main reason for the proposed short entry is the intensive insider-selling activity.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.