Intuitive Surgical, Inc. ISRG is well poised for growth on improving adoption of da Vinci Surgical System, strong international presence and solid recurring revenue base. However, stiff competition continues to be a concern.
Shares of the Zacks Rank #3 (Hold) company have gained 6.7% compared with the industry’s growth of 6.3% in a year’s time. Meanwhile, the S&P 500 Index has rallied 12.6% in the same timeframe.
The company, with a market capitalization of $65.92 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 11.6% over the next five years. Moreover, it has beat estimates in the trailing four quarters by 8.3%, on average.
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 fourth-quarter 2019, da Vinci procedures improved 19% globally compared with the prior-year quarter. The upside was driven by healthy growth in U.S. General Surgery. In the fourth quarter, Intuitive Surgical placed 336 da Vinci surgical systems, with the installed base improved 12% year over year. In fact, it now anticipates 2020 procedure growth to be 13-16%.
Intuitive Surgical is gradually gaining prominence in markets outside the United States. In fourth-quarter 2019, international revenues rose 37% year over year, courtesy of solid show by the Instruments & Accessories segment.
Notably, the segment grew on solid procedure growth and customer buying patterns. Intuitive Surgical placed 140 systems in fourth-quarter 2019 compared with 115 units in prior-year quarter. Of these, 54 were in Europe, 26 in Japan and 39 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 the last reported quarter, total recurring revenues were $896 million, up 24% year over year and accounting for a whopping 70% 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 $5.02 billion, indicating an improvement of 12.2% from the year-ago quarter. The same for earnings stands at $13.23 per share, suggesting growth of 3.7% from the year-ago reported figure.
Stocks to Consider
Some other better-ranked stocks from the broader medical space include Accuray Incorporated ARAY, West Pharmaceutical Services, Inc. WST and DexCom, Inc. DXCM, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Accuray has an expected earnings growth rate for the next quarter of 200%.
West Pharmaceutical has an estimated earnings growth rate for the next quarter of 3.4%.
DexCom has a projected long-term earnings growth rate of 36.7%.
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