We upgrade our rating for
) to Outperform. First quarter earnings per share beat the Zacks
Consensus Estimate. Recurring revenue continues to grow as a
proportion of sales. Recurring revenues moved up 31% year over year
and constituted 58% of sales in the most recent
Revenue amounted to $495.2 million in the first quarter, up 28%
year over year. On a segment-wise basis, the company reported
revenues from instruments and accessories of $208 million, up 32%
year over year. The growth was driven by a 29% year-over-year
increase in da Vinci surgical procedures. The uptick in procedure
count mainly emanated from overseas urologic cases as well as
domestic gynecologic procedures and general surgery categories.
Revenues from sales of systems were $207 million, up 24% year
over year. The increase in systems revenue was due to higher sales
of 140 da Vinci Systems compared with 120 systems in the year-ago
quarter. Service revenue was $81 million, up 27% year over year,
primarily due to rise in the installed base of da Vinci Surgical
The installed base of Intuitive is expanding as more hospitals
feel compelled to upgrade their technology. Sustained demand for
procedures helped raise cumulative system count by 101 systems to
2,132, as of December 31, 2011, of which 1,548 systems (73%) were
based in the U.S.
Overall, a proper 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 balance and no debt.
However, we believe that until the global economy recovers
fully, and uncertainty about health care reform is removed, the
stock may come under temporary periodic pressure as investors
evaluate whether these factors weaken hospitals' commitment to buy
high-cost robotic systems. Intuitive competes with
) in certain niches.
Our Outperform recommendation is supported by a short-term Zacks
#2 Rank (Buy).
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