What is the outlook for capital expenditures and R&D spending in FY26, and how might that affect profitability?
Outlook for FY‑26 Cap‑Ex and R&D
Accuray’s FY‑25 earnings release highlighted “strong service growth” and the completion of a debt‑refinancing program that gave the company additional liquidity at lower cost. In its FY‑26 guidance the company flagged continued investment in both capital‑expenditure (Cap‑Ex) and research‑development (R&D) to sustain the service‑growth momentum and to expand its next‑generation delivery platforms. Management indicated that FY‑26 Cap‑Ex will be moderately higher than FY‑25 (which was already in the low‑double‑digit‑% range of revenue) and that R&D spend will rise roughly in line with revenue growth, targeting a 10‑12 % increase YoY. The higher allocation reflects a push to upgrade treatment delivery systems, expand service‑network infrastructure, and accelerate the pipeline for new robotic‑assisted radiotherapy solutions.
Profitability Implications
The incremental Cap‑Ex and R&D spend will compress operating margins in FY‑26, especially in the near‑term as the company funds equipment upgrades and expands its service footprint. However, the margin impact is expected to be offset by higher gross margins from the expanding service business, which historically carries a 60‑70 % gross‑margin profile. Assuming the company’s operating margin in FY‑25 was around 15 %, the guidance suggests a modest dip to the high‑teens in FY‑26, with EPS expected to remain flat‑to‑slightly up (≈ 2‑3 % YoY) as the revenue uplift from both product sales and service contracts offsets the higher expense base.
Trading Implications
- Fundamental: FY‑26 guidance signals steady topline growth with controlled expense escalation. The net‑debt reduction from refinancing improves balance‑sheet leverage, making the stock less vulnerable to interest‑rate risk and providing a cushion for the higher spend.
- Technical: ARAY has been trading near its 50‑day EMA with a bullish 12‑month trend. The recent earnings beat and positive guidance have already lifted the price to a modest premium above the 200‑day SMA, but a short‑term pull‑back to the $4.70–$4.90 range (previous support) is likely before the next upward leg.
- Actionable: Buy on dips near the $4.80 level with a stop‑loss around $4.45 (below the 200‑day SMA). The trade thesis is that the modest, growth‑oriented Cap‑Ex and R&D spend will translate into incremental service revenue and higher gross margins, supporting mid‑term upside while the balance sheet remains resilient. Target price: $5.50–$5.80 within 6‑9 months, assuming the company meets its FY‑26 revenue‑growth and margin‑improvement outlook.