Intuitive Surgical, Inc. ISRG failed to impress investors with its weak operational performance in the second quarter of 2020. Moreover, intense competition in the MedTech space continues to raise concern.
The Zacks Rank #4 (Sell) company — with a market capitalization of $75.13 billion — designs, manufactures and markets the da Vinci surgical system and related instruments and accessories. Shares of the company have gained 8.6% compared with the industry’s growth of 14.5% on a year-to-date basis. Meanwhile, the S&P 500 Index has rallied 11.4% in the same timeframe.
Factors Hurting the Stock
Intuitive Surgical witnessed dismal operational performance in the second quarter. Notably, gross profit in the reported quarter was $531.9 million, down 32.1% year over year. As a percentage of revenues, gross margin in the quarter was 59%, down 1010 basis points (bps).
Moreover, adjusted operating income totaled $193.3.3 million, down 57.5% year over year. As a percentage of revenues, operating margin in the quarter was 9.5%, down 2320 bps. Moreover, weak segmental performance in the second quarter was a downer.
Intuitive Surgical used to enjoy a monopoly stature in the market for robots utilized in abdominal surgery since the launch of its flagship device — da Vinci — back in 2000. However, following the regulatory approval of Transenterix's surgical robot for abdominal surgery in 2017, competition has intensified in the space.
Further, Verb Surgical, a joint venture formed between Alphabet and Johnson & Johnson, is supposedly working on integrating big data and machine learning with robotic surgery. Consequently, stiff competition in the global MedTech space continues to intensify and impact the company’s prospects.
Which Way Are Estimates Headed?
For 2020, the Zacks Consensus Estimate for revenues is pegged at $4.13 billion, indicating a decline of 7.8% from previous year. The same for earnings stands at $8.68 per share, suggesting a fall of 31.9% from the year-ago reported figure.
Stocks to Consider
Some better-ranked stocks from the broader medical space include West Pharmaceutical Services, Inc. WST, Thermo Fisher Scientific Inc. TMO and PerkinElmer, Inc. PKI. While PerkinElmer sports a Zacks Rank of 1 (Strong Buy), both West Pharmaceuticals and Thermo Fisher carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
PerkinElmer has a projected long-term earnings growth rate of 17.4%.
Thermo Fisher has an estimated long-term earnings growth rate of 15%.
West Pharmaceutical has a projected long-term earnings growth rate of 17.4%.
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