Intuitive Surgical Remains Neutral - Analyst Blog


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We maintain our recommendation for Intuitive Surgical ( ISRG ) at Neutral. Earnings per share for the second quarter of $3.75 easily beat the Zacks Consensus Estimate. Profit grew 31.9% year over year to $154.9 million.

Intuitive Surgical reported revenues of $536.5 million, up 26% year over year, beating the Zacks Consensus Estimate of $521 million. Revenues were driven by robust sales of da Vinci Surgical Systems and increased adoption of da Vinci surgery procedures.

Revenues from instruments and accessories were $223.7 million in the second quarter, up 30% year over year. Sales increased on the back of da Vinci surgical procedures as well as new product introduction. Rise in gynecological procedures, general procedures in the domestic market and urological procedures in the overseas market contributed to the growth.

Systems revenues came in at $229.4 million in the second quarter, up 23% year over year. The growth was driven by higher sales of da Vinci systems. Intuitive noted that 150 da Vinci Systems were sold in the quarter, compared with 129 systems in the year-ago quarter. Service revenues rose 23% year over year to $83.4 million, helped by an increase in the installed base of da Vinci systems.

The company refreshed its guidance for 2012. Growth in total procedure count continues to be projected between 25% and 27% for 2012. Revenues are now expected to rise 20% to 23% (earlier 19% to 21%). Operating income continues to be forecast in the range of 39% to 40% of revenues, in line with recent trends. 

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 competition.

Intuitive's recurring revenue stream continues to grow and provides a shield against cyclicality of revenues, arising from the sale of discretionary capital equipment to hospitals. However, we believe that until the global economy recovers, the stock may come under pressure as investors ponder whether lingering macro economic uncertainty weakens hospitals' commitment to buy high-cost robotic systems.

The pace of adoption of robotic surgery may therefore be lumpy and growth in usage requires acceptance from patients and training to medical practitioners. Intuitive competes with Accuray Incorporated ( ARAY ) in certain niches.

We prefer to remain on the sidelines partly due to a high valuation, which factors in the attractive growth prospects of the company, despite the da Vinci system's leading status as an enabler of robotic minimally invasive surgery. The stock currently retains a Zacks #2 Rank, which translates into a short-term Buy recommendation.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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