Intuitive Surgical Tops on Q4 Earnings & Revs - Analyst Blog

Intuitive Surgical Inc. ( ISRG ) reported net earnings of $4.28 per share for the fourth quarter of 2013, which exceeded the Zacks Consensus Estimate of $3.79 and were up 1% year over year. However, net earnings of $166.2 million went down 4.9% from the fourth quarter of 2012.

Full year adjusted earnings per share (after adjusting for certain discrete tax benefits) came in at $17.59, registering a beat over the Zacks Consensus Estimate of $16.32 and the 2012 adjusted earnings of $17.10.

Revenues in the quarter dipped 5% to $576 million. However, the result exceeded the Zacks Consensus Estimate of $551 million. The year-over-year decline was due to pressure on gynecology surgery, dispute related to some da Vinci procedures along with changing capital spending priorities in hospitals due to the implementation of the Affordable Care Act.

2013 revenues were up 4% to $2,265 million although the figure lagged the Zacks Consensus Estimate of $2,300 million.

Segment Results

Revenues from Instruments and Accessories grew 6% to $268 million on the back of 12% year-over-year rise in da Vinci surgical procedures due to growth in U.S. general surgery, U.S. gynecology and international urology procedures.

Revenues from Systems plunged 23% to $205 million due to slower growth in benign gynecology combined with changing hospital capital spending priorities. Intuitive Surgical sold 37 da Vinci Surgical systems lesser than 175 systems sold in the prior-year quarter.

Revenues from Services rose 14% to $103 million. The increase can be attributable to higher installed base of da Vinci Surgical Systems.

Operating income slashed 15.9% year over year to $208.6 million. With this, operating margin declined 130 basis points to 36.2%.

Financial Position

Intuitive Surgical had cash, cash equivalents and investments of $2.8 billion as of Dec 31, 2013, down from $2.9 billion as of Dec 31, 2012. The company spent $1.1 billion to repurchase about 2.6 million shares in the year, reflecting an average price of $429.

Our Take

Intuitive Surgical continues to be affected by stiff hospital capital spending environment and sluggish benign gynecologic procedures in the U.S. These are taking a toll on the sale of its da Vinci Surgical systems.

Despite the beat, investors are skeptical due to lower profits in the third quarter. This disappointment has reflected in the 0.03% fall in stock price after the market closed yesterday.

However, going forward in 2014, Intuitive Surgical expects stabilization in procedure growth rate with full-year procedures growing in the range of 9% to 12%. Moreover, in the upcoming quarter, the company expects a prominent quarterly seasonality with increasing proportion of benign procedures in its procedure mix.

We prefer to remain on the sidelines about this Zacks Rank #3 (Hold) at present. Instead, some better-ranked stocks worth reckoning in the medical instruments industry include Natus Medical Inc. ( BABY ), AngioDynamics Inc. ( ANGO ) and Cepheid ( CPHD ). While Natus Medical sports a Zacks Rank #1 (Strong Buy), the other two stocks carry a Zacks Rank #2 (Buy).

ANGIODYNAMICS (ANGO): Free Stock Analysis Report

NATUS MEDICAL (BABY): Free Stock Analysis Report

CEPHEID INC (CPHD): Free Stock Analysis Report

INTUITIVE SURG (ISRG): Free Stock Analysis Report

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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.

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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