North America

Earnings Preview: Intuitive Surgical Q2 2017 (ISRG)

By: Craig Bowles

Overview

Intuitive Surgical, Inc. (ISRG) is slated to report 2Q 2017 earnings after the bell on Thursday, July 20th. The earnings release is expected at approximately 4:05 p.m. ET followed at 4:30 p.m. with a webcast presentation available through Intuitive Surgical Investor Relations. The company designs, manufactures, and markets da Vinci surgical systems, and related instruments and accessories in the United States, Europe, and Asia.

Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS): Analyst consensus is $5.78 (range $5.45 to $6.01). (Source: Yahoo! Finance) Consensus was $5.87 three months ago.
  • Revenues: Analyst consensus expectations are for a 7.6% y/y increase to $721.26 mln (range $687.0 mln to $736.3 mln).
  • Intuitive Surgical’s Price/Earnings of 47.3 compares to a five-year average of 35.2; P/Book of 8.4 compares to a five-year average of 5.4; P/Sales of 13.2 compares to a five-year average of 9.1; P/Cash Flow of 34.9 compares to a five-year average of 26.4.
  • Analysts view ISRG with 12 Buy, 6 Hold, and 1 Sell ratings. (source: MarketBeat.com)
  • Insiders sold 55,880 shares in the last three months and 173,209 shares in the past year. (source: NASDAQ.com) The stock buyback was increased to $3 bln on December 13th, 2016 compared to 2015 $1 bln, 2014 $1 bln and 2013 $1.5 bln.
  • Intuitive Surgical is an operative surgical robotics company and results can affect other medical instrument companies, such as Accuray (ARAY), Edwards Lifesciences (EW), Delcath Systems (DCTH), Stryker (SYK), RTI Surgical (RTIX) and Medtronic (MDT).
  • Intuitive Surgical shares have a 1-day average price change on earnings of 5.20%. Options are pricing in an implied move of 3.97% off earnings.

Recent News

  • 07/05: Leerink Partners maintained an Outperform rating on Intuitive Surgical and believes product cycles are underappreciated for incremental rev/EPS potential into the out-years for 2 upcoming product cycles in 2018 (X, Sp) and 2019 (flexible catheter robotics), according to a post on StreetInsider.com.
  • 05/30: Canaccord Genuity downgraded ISRG to Hold from Buy citing that “valuation overvalues the combination of solid fundamentals, the pipeline’s near- to medium-term prospective contribution to the P&L, and potential upside to management’s historically conservative guidance tendencies. Moreover, the stock would not benignly endure a micro or macro hiccup or change in sentiment, either of which could rerate the multiple materially lower,” according to a post on StreetInsider.com.
  • 05/24: Wells Fargo maintains an Outperform rating on Intuitive Surgical after hosting a meeting with management impressed with ISRG’s near- and long-term opportunities, according to a post on StreetInsider.com.
  • 05/22: Morgan Stanley maintains an Overweight rating on Intuitive Surgical citing the da Vinci Sp ushers in the next phase of the growth story. The Sp system is a patient-side cart that would enable robotic surgery through one entry point via a 25 mm cannula. They view the primary benefits of the Sp system as threefold: (i)easier access for surgery through natural orifices (e.g. the mouth), (ii) improved patient aesthetics,and (iii) reduced invasiveness and post-operative pain, according to a post on StreetInsider.com.
  • 05/16: Goldman Sachs initiated coverage on Intuitive Surgical with a Buy rating citing four reasons: (1) With less than 4% of US surgeries employing robotics today, we think investors should own the structural winner as this market expands. (2) Our work suggests general surgery procedures will double in the next two years on the back of ISRG’s new product cycle called SP (Single Port). (3) Emerging markets appear underappreciated. Our collaboration with GS APAC Healthcare analyst Richard Yeh suggests that <3% of Tier 3 hospitals in China currently have ISRG’s da Vinci system. (4) We think near-term concerns on competition are overdone., according to a post on StreetInsider.com.

Technical Review

Intuitive Surgical shares made another all-time high of $963.54 in June after testing the 200-day moving average at the end of 2016. Another repeat of 4.5 years between highs would be October 2017 following the previous 2007 and 2012 peaks. Two balance areas above $900 but the $800s were straight up and even the $700s saw shares only trade in balance for short periods. (Chart courtesy of StockCharts.com)

Summary

Intuitive Surgical is expected to eventually have to deal with competition after April 2018 as licenses begin to get approved in Europe for other vendors. Revenue growth is back down into single digits already. Insider selling remained about average as the company tripled their stock buyback at the end of 2016.  The company has beaten analyst consensus by an average of 48c the last four quarters but the last two quarters averaged an 11c beat. Estimize consensus for Non-GAAP EPS of $5.79 on revenue of $727.88 mln compares to analyst consensus of $5.78 on revenue of $721.26 mln.

 

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