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Jan 25, 2018

S3 Analytics: Varian Medical’s EPS Beat Costs Shorts Nearly $100 million

The Healthcare Equipment Sector has been in rally mode over the last year, up 37%, including a 9% positive move over the last month. The sector rally received another boost with Varian Medical Systems (VAR) beating consensus EPS estimates handily, coming in at $1.06/share. VAR’s stock price surged 14% in mid-morning trading, hitting historical highs.

Short interest in the Healthcare Equipment Sector is $12.7 billion, increasing by over $583 million over the last week. Short sellers have been holding onto their short exposure in the sector during this year-long rally, but with VAR’s strong quarterly performance we may see some short bets coming off the table as short sellers in the top ten most shorted stocks in the sector are down $775 million in year-to-date mark-to-market losses. Most analysts have upgraded VAR’s rating and target price on today’s news with Goldman Sachs being the sole exception by dropping VAR’s rating to a sell.

If overall short interest in the sector does not decrease, traders may be looking for at least a temporary lull in the year-long rally and VAR’s positive performance a one-off outlier in the sector. A decline in short interest would signify sector short sellers rebalancing their positions in anticipation of continued earnings strength in the sector. With earnings season getting up to speed, we should see short interest increasing or decreasing.

Want deeper insight into the above analysis? Contact:
Managing Director Predictive Analytics, S3 Partners, LLC
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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