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Why Is Intuitive Surgical (ISRG) Up 9.8% Since the Last Earnings Report?

It has been about a month since the last earnings report for Intuitive Surgical, Inc. ISRG. Shares have added about 9.8% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted 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 Beats on Q3 Earnings & Revenues

Intuitive Surgical posted adjusted earnings of $2.77 per share in the third quarter of 2017, crushing the Zacks Consensus Estimate of $1.97 on stellar revenue growth. Also, the figure improved 34.5% on a year-over-year basis. Interestingly, over the past four quarters, the company beat estimates at an average of 7.8%.

Revenues increased 18% year over year to $806.1 million, driven by growth in instrument, accessory and service, and systems revenues. Revenues also beat the Zacks Consensus Estimate of $752 million.

It is important to note that the company’s stockholders approved a three-for-one split of the issued and outstanding common stock, which began trading on a split-adjusted basis on Oct 6.

Business Highlights

Solid Procedure Trends: Intuitive Surgical posted solid numbers in the quarter, courtesy of rising customer adoption of procedures and growth in system placements. The company outperformed in the Mature and Growth procedures, especially in general and thoracic surgery.

Precisely, third-quarter procedures increased approximately 15% on a year-over-year basis. U.S. procedures grew approximately 12% and outside of the United States (OUS) procedures grew approximately 23% year over year. Procedure performance in Asia showed continued strength on solid growth in China, Japan and Korea. Added to this, solid growth in prostatectomy procedure volumes lent Intuitive Surgical a competitive edge in the broader prostate surgery market in the third quarter.

Launches Bode Well: In the third quarter, Intuitive Surgical expanded the launch of two additional instruments and accessories for da Vinci X and Xi platforms in seven countries. In fact, the company initiated a limited launch of a refined vessel sealer in Europe in the reported quarter. Management announced plans to file the first 510(k) for FDA approval of da Vinci SP program by year-end, and submissions for additional indications thereafter.

International Sales: Globally, Intuitive Surgical’s system placements included 25 in Europe, 14 in Japan, five in India, four in New Mexico and one in China. However, as the OUS markets are in early stages of adoption, sales might be lower than estimated in the region.

Revenue Segments

Instruments and Accessories: Revenues at the segment grew 15% to $401 million in the quarter, driven by strong procedure growth and increased sales of stapling and vessel sealing products. Revenues realized per procedure were approximately $1,880 compared with $1,870 in the year-ago quarter.

System: Sales increased 15% to $237 million buoyed by higher system placements, partially offset by lower average selling prices. Notably, Intuitive Surgical generated approximately $7 million in revenues associated with operating leases in the reported quarter compared with $4 million in the third quarter of 2016. Coming to the company’s flagship da Vinci surgical platform, the company shipped 169 surgical systems, up from 134 in the third quarter of 2016.

Service: The company registered revenues of $147 million, up 13% on a year-over-year basis on growth in the installed base of da Vinci systems.

Margin

Intuitive Surgical’s adjusted gross margin in the reported quarter contracted 130 basis points (bps) to 71.8% of net revenues. The decrease in margins was due to a $7-million medical device tax refund, which was received in 2016.

Notably, management at Intuitive Surgical expects margins to fluctuate based on the company’s mix of new products, mix of systems in instrument and accessory revenue, reduction of product costs and the reinstatement of the medical device tax in 2018.

Financial Update

Intuitive Surgical ended the third quarter of 2017 with $3.8 billion in cash, cash equivalents, and investments, up by $379 billion on a year-over-year basis. This was primarily driven by cash generated from operations and employee stock-option exercises.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. There has been one revision lower for the current quarter.

Intuitive Surgical, Inc. Price and Consensus

 

Intuitive Surgical, Inc. Price and Consensus | Intuitive Surgical, Inc. Quote

VGM Scores

At this time, Intuitive Surgical's stock has a nice Growth Score of B. Its Momentum is doing a bit better with an A. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for momentum investors than growth investors.

Outlook

While estimates have been broadly trending downward for the stock, the magnitude of these revisions has been net zero. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.


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