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Here's Why You Should Hold on to Intuitive Surgical Stock Now

Zacks Equity Research
·4-min read

Intuitive Surgical, Inc. ISRG is well poised for growth on improving adoption of da Vinci Surgical System, strong international presence and robust recurring revenue base. However, stiff competition remains a concern.

Shares the company have gained 12.7% compared with the industry’s growth of 2.6% in a year’s time. Meanwhile, the S&P 500 Index has rallied 5.2% in the same timeframe.

The company, with a market capitalization of $66.62 billion, designs, manufactures and markets the da Vinci surgical system and related instruments and accessories. Notably, the da Vinci surgical system is an advanced robot-assisted surgical system. It anticipates earnings to improve 6.5% over the next five years. Moreover, it has beat estimates in each of the trailing four quarters, the average positive surprise being 10.7%.

Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).




What’s Deterring the Stock?

Stiff competition in the global MedTech space remains a concern.

What’s Favoring the Stock?

Intuitive Surgical’s robot-based da Vinci surgical system enables minimally-invasive surgery, which reduces risks associated with open surgery. The company continues to gain from this system, which in turn bolsters overall performance.

In first-quarter 2020, da Vinci procedures grew 10% globally compared with the comparable year-ago period. The upside was driven by growth in U.S. General Surgery procedures and worldwide urologic procedures. In the first quarter, Intuitive Surgical placed 237 da Vinci surgical systems, with the installed base growing 11% year over year.

The company is gradually gaining prominence in markets outside the United States. In first-quarter 2020, international revenues totaled $317.9 million, up 12.7% on a year-over-year basis. The improvement can be attributed to higher instruments and accessory revenues, driven by procedure growth and customer buying patterns.

Outside the United States, Intuitive Surgical placed 55 systems in the first quarter compared with 81 in the prior-year quarter. Of these, 25 were in Europe, 10 in Japan and nine in China.  

Intuitive Surgical’s business model ensures that it continues to generate revenues from initial capital sales of da Vinci Surgical Systems, and subsequent sales of instruments, accessories and services. In first-quarter 2020, total recurring revenues were $855.3 million, up 14.6% year over year. The figure accounted for a whopping 78% of total revenues.

Recurring revenues, as portion of total revenues, continue to grow at a much higher rate compared with system sales. This ensures a steady stream of income, even in testing times.

Which Way Are Estimates Headed?

For 2020, the Zacks Consensus Estimate for revenues is pegged at $3.93 billion, indicating a decline of 12.2% from the prior-year quarter. The same for earnings stands at $8.15 per share, suggesting a fall of 36.1% from the year-ago reported figure.

Stocks to Consider

Some better-ranked stocks from the broader medical space include Quest Diagnostics Incorporated DGX, Laboratory Corporation of America Holdings LH and West Pharmaceutical Services, Inc. WST. While West Pharmaceutical sports a Zacks Rank #1 (Strong Buy), Quest Diagnostics and Laboratory Corporation carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

West Pharmaceutical has a projected long-term earnings growth rate of 9.2%.

Quest Diagnostics has an estimated long-term earnings growth rate of 7.6%.

Laboratory Corporation has an estimated long-term earnings growth rate of 6.1%.

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Intuitive Surgical, Inc. (ISRG) : Free Stock Analysis Report
 
Quest Diagnostics Incorporated (DGX) : Free Stock Analysis Report
 
Laboratory Corporation of America Holdings (LH) : Free Stock Analysis Report
 
West Pharmaceutical Services, Inc. (WST) : Free Stock Analysis Report
 
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Zacks Investment Research