Rising earnings estimates on the back of strong third quarter
results - including a 28.2% earnings surprise - helped
) achieve a Zacks #1 Rank (Strong Buy) on January 1, 2013.
Moreover, this pioneer of robotic surgery has delivered a
positive earnings surprise in each of the last five quarters with
an average beat of 13.7%.
The Rank Driver
We expect a number of procedures that are currently completed
either in an open surgical manner or with laparoscopy to be
eventually replaced by da Vinci surgery, as robotic surgery
becomes the standard of care in many instances. The company
enjoys a virtual monopoly in robotic surgery with little
Intuitive's recurring revenue stream continues to be robust
and provides a shield against cyclicality of revenues arising
from the sale of discretionary capital equipment to hospitals.
Recurring revenues continue to grow as a proportion of total
sales. It increased 24% year over year in the third quarter and
constituted 57% of revenues.
However, we believe that until the global economy fully
recovers, the stock may come under periodic pressure as investors
ponder whether lingering macro economic uncertainty weakens
hospitals' commitment towards investment in high-cost robotic
systems. In the interim, the installed base of Intuitive
continues to grow as hospitals are compelled to upgrade their
Overall, a reasonable valuation is appropriate given positive
factors such as Intuitive's leading position in robotic surgery,
a growing list of emerging procedures, barriers to entry,
sizeable cash and no debt.
The company tweaked its guidance for revenues and operating
income for 2012 along with its third quarter results. For 2012,
revenues are forecast to grow in the range of 21.5% to 23%
compared with the earlier guidance of 20% to 23%. Operating
income is expected at about 40% compared to approximately 39% to
40% of net sales earlier. The company lowered its procedure
growth at 24% (earlier in the band of 25% and 27%) for 2012.
Earnings Estimate Revisions
The Zacks Consensus Estimate for 2012 increased 0.3% to $14.85
per share based on 6 out of 8 upward estimate revisions over the
last 60 days. The current estimate implies year-over-year growth
Intuitive currently trades at a forward P/E of 33.4x, a 77.8%
premium to the peer group average of 18.8x. Also, on a
price-to-book basis, the shares are trading at 6.0x, a 42.9%
premium to the peer group average of 4.2x. Given the company's
strong fundamentals, the premium valuation is justified.
Intuitive has a trailing 12-month ROE of 18% compared with the
peer group average of 12.3%.
About the Company
Headquartered in Sunnyvale, California, Intuitive specializes
in minimally invasive robotic surgery. Its systems find
application in gynecology and prostatectomy procedures besides a
host of emerging procedures. The company has a market
capitalization of about $19.5 billion.
Other Zacks #1 Rank (Strong Buy) stocks include
Cantel Medical Corp.
CANTEL MED CORP (CMN): Free Stock Analysis
INTUITIVE SURG (ISRG): Free Stock Analysis
MYRIAD GENETICS (MYGN): Free Stock Analysis
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