Varian Medical Systems: 4 Different Insiders Have Sold Shares During The Last 30 Days

Apr.13.14 | About: Varian Medical (VAR)

Summary

Four insiders sold Varian stock within one month.

The stock was not purchased by any insiders in the month of intensive selling.

Three of these four insiders 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 activity during the last 30 days.

Name Title Trade Date Shares Sold Rule 10b5-1 Current Ownership Decrease In Ownership
Kolleen Kennedy SVP Apr 9 775 Yes 6,236 shares + 14,738 options 3.6%
Elisha Finney CFO Apr 1 10,000 Yes 26,434 shares + 6,000 options 23.6%
Clarence Verhoef SVP Mar 17 1,140 Yes 768 shares 59.7%
John Kuo SVP Mar 11 9,913 Yes 15,317 shares + 16,480 options 23.8%
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There have been 21,828 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 activity by calendar month.

Month Insider selling / shares Insider buying / shares
April 2014 10,775 0
March 2014 102,470 0
February 2014 70,730 0
January 2014 65,242 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 1,090,933 shares sold, and there have been zero shares purchased by insiders since January 2013.

Financials

Varian reported the fiscal 2014 first-quarter, which ended December 27, financial results on January 22 with the following highlights:

Revenue $711.5 million
Net income $98.0 million
Cash $1.0 billion
Debt $481.3 million
Backlog $2.8 billion
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The four insiders sold their shares after these results.

Outlook

Varian's guidance is as follows:

Q2/2014 FY2014
Revenue growth ~0% 6%-8%
EPS $1.00-$1.04 $4.22-$4.34
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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: 8.40B 642.10M 5.12B
Employees: 6,400 989 3,731
Qtrly Rev Growth (yoy): 0.03 0.20 -0.02
Revenue: 2.98B 325.72M 1.57B
Gross Margin: 0.43 0.34 N/A
EBITDA: 677.96M -23.34M 311.81M
Operating Margin: 0.21 -0.14 0.18
Net Income: 440.92M -70.89M 176.10M
EPS: 4.03 -0.95 0.45
P/E: 20.10 N/A 29.66
PEG (5 yr expected): 1.39 -0.49 1.42
P/S: 2.92 2.06 3.26
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Varian has the second-highest P/S ratio among these three companies.

Here is a table of these competitors' insider activities this year.

Company Insider buying / shares Insider selling / shares
ARAY 9,795 0
EKTAF N/A N/A
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Only Varian has seen intensive insider selling during the last 30 days.

Conclusion

There have been four different insiders selling Varian, and there have not been any insiders buying Varian during the last 30 days. Three of these four insiders decreased their holdings by more than 10%. Varian has an insider ownership of 0.31%.

Before going short Varian, I would like to get a bearish confirmation from the Point & 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.