Key Takeaways
- Accelerating demand for advanced imaging and growth in cargo inspection position Varex for faster-than-expected margin expansion and top-line growth.
- Regionalized manufacturing and improved financial flexibility will drive lasting cost reductions, higher profitability, and support continued investment and strategic opportunities.
- Trade tensions, shifting medical technologies, rising global competition, and customer concentration risk challenge Varex Imaging's margins, innovation pace, and long-term revenue stability.
Catalysts
About Varex Imaging- Designs, manufactures, and sells X-ray imaging components.
- Analyst consensus recognizes the rebound in China and expects partial recovery, but this understates the upside, as management explicitly stated that the majority of China revenue is merely paused, not lost, and likely to recover fully or even accelerate as mitigation strategies and local production come online, driving a sharp revenue snap-back and potential earnings upside by Q4 2025.
- Analysts broadly focus on the growing backlog and order wins in cargo inspection, yet the scale and cadence of large international deals-such as the $25 million order-and the developing long-term recurring service revenues suggest Varex could reach critical mass in this high-margin business much faster than expected, resulting in significant margin expansion and durable top-line growth.
- The accelerating shift towards AI-driven, high-resolution medical imaging systems is set to create a step-change in demand for Varex's advanced X-ray tubes and next-generation photon counting detectors, positioning the company to capture above-market growth rates and driving sustained upward revisions to both revenue and gross margins.
- Varex's ongoing investment in manufacturing regionalization-especially through the India plant and localized supply chains-will not only mitigate geopolitical and tariff risks but also enable product cost reductions and permanent improvements in net margins as the company serves both established and emerging markets from optimized locations.
- The company's strong cash generation, disciplined working capital management, and reduction in debt following convertible note repayment create flexibility for accelerated R&D investment or strategic M&A, setting the stage for multiple expansion as operating leverage increases and Varex moves towards a less levered, more profitable capital structure.
Varex Imaging Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- This narrative explores a more optimistic perspective on Varex Imaging compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
- The bullish analysts are assuming Varex Imaging's revenue will grow by 2.9% annually over the next 3 years.
- The bullish analysts assume that profit margins will increase from -5.1% today to 6.5% in 3 years time.
- The bullish analysts expect earnings to reach $59.0 million (and earnings per share of $1.16) by about July 2028, up from $-42.0 million today. The analysts are largely in agreement about this estimate.
- In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 23.0x on those 2028 earnings, up from -7.5x today. This future PE is lower than the current PE for the US Medical Equipment industry at 31.1x.
- Analysts expect the number of shares outstanding to grow by 1.47% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 11.16%, as per the Simply Wall St company report.
Varex Imaging Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Heightened global tariff tensions, especially between the US and China, have led to significant order pauses and revenue impacts in China, which represents roughly 15% of Varex Imaging's revenue; this not only pressures near-term revenues but also introduces the risk of long-term market access volatility that may persist as trade environments evolve.
- The company's mitigation strategies (such as localizing manufacturing, shifting supply chains, and passing on tariff costs to customers) may not be fully effective in offsetting rising costs or preserving customer demand, potentially leading to sustained lower gross margins and squeezed earnings should trade friction persist or escalate.
- Rapid shifts toward digitally enabled, non-radiological diagnostic modalities and intensifying global competition, particularly from low-cost manufacturers in emerging markets, present secular threats to demand for Varex's core X-ray tube and detector products, risking long-term revenue growth and eventual erosion of the company's pricing power.
- The reliance on a concentrated customer base, notably large OEMs such as Canon and GE, leaves Varex vulnerable to sudden order delays, shifts in procurement strategies, or supplier consolidation, which could create significant revenue swings and greater earnings volatility, especially as healthcare providers respond to global cost containment pressures.
- Lower R&D investment year-on-year, combined with ongoing sectoral risks of regulatory tightening and potential product obsolescence-especially in analog X-ray components-may impair Varex's ability to keep pace with industry innovation, ultimately threatening its competitive edge, dampening future sales, and reducing long-term profitability.
Valuation
How have all the factors above been brought together to estimate a fair value?- The assumed bullish price target for Varex Imaging is $23.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Varex Imaging's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
- However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $23.0, and the most bearish reporting a price target of just $10.0.
- In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $901.1 million, earnings will come to $59.0 million, and it would be trading on a PE ratio of 23.0x, assuming you use a discount rate of 11.2%.
- Given the current share price of $7.58, the bullish analyst price target of $23.0 is 67.0% higher.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
How well do narratives help inform your perspective?
Disclaimer
AnalystHighTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystHighTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystHighTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.