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Intuitive Surgical (ISRG) Up 2.9% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for Intuitive Surgical (ISRG). Shares have added about 2.9% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Intuitive Surgical due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Intuitive Surgical Q4 Earnings Miss, da Vinci Performs Well

Intuitive Surgicalreported adjusted earnings of $2.96 per share in the fourth quarter of 2018, which fell short of the Zacks Consensus Estimate of $2.99. Adjusted earnings improved 13.8% year over year.

Revenues totaled $1.05 billion improved 17.3% from the prior-year quarter and surpassed the Zacks Consensus Estimate of $1.04 billion.

Segment Details

Instruments & Accessories

Revenues at the segment came in at $ 539.3 million, which reflects year-over-year increase of 18%. The uptick was primarily driven by 19% growth in worldwide da Vinci procedure volumes.

Systems

In the reported quarter, System revenues increased 19.7% year over year to $340.6 million. Per management, Intuitive Surgical shipped 290 da Vinci Surgical Systems in the fourth quarter compared with 216 systems in the year-ago quarter.

Per management, the install base of da Vinci systems increased 13% on a year-over-year basis.

Services

Services revenues came in at $166.6 million, up 10.8% from the year-ago quarter.

International Sales Up

Outside the United States, revenues totaled $307 million, up 24% on a year-over-year basis and 25% sequentially. The upside can be attributed to a 24% increase in international procedures.

Outside the United States, Intuitive Surgical placed 115 systems in the reported quarter compared with 86 in the fourth quarter of 2017. Of these, 35 were X systems. This included 55 in Europe, 31 in Japan, and nine in Brazil.

Margins

Adjusted gross profit in the reported quarter was $751.2 million, up 16.3% year over year. As a percentage of revenues, adjusted gross margin in the quarter was 71.8% which contracted 60 basis points (bps). Per management, the downside reflects product mix in costs associated with new products.

Adjusted operating income totaled $411.8 million, up 6.7% year over year. As a percentage of revenues, adjusted operating margin in the quarter was 39.4%, down 390 bps.

For investors’ notice, Intuitive Surgical’s fourth-quarter operating expenses include a $25 million contribution to the newly-formed Intuitive Foundation.

2019 Outlook

Intuitive Surgical did not issue any guidance.

However, management expects 2019 procedure growth in the range of 13-17%, driven by U.S. general surgery and procedures. Adjusted operating expenses are expected to rise 20-28%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Intuitive Surgical has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Intuitive Surgical has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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