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Analyst Blog

On Aug 28, we maintained our Neutral recommendation on Intuitive Surgical, Inc. (ISRG - Analyst Report). We are encouraged by an increase in the company’s da Vinci surgical procedures and healthy adoption of its new offerings as well as growth in international urology and U.S. gynecology but disappointed with its lower than expected earnings and revenues.

Why Maintained?

Intuitive Surgical reported 2013-second-quarter earnings per share of $3.90, missing the Zacks Consensus Estimate of $4.05. However, earnings surpassed the year-ago level of $3.75 per share. Revenues grew 8% to $579 million, but trailed the Zacks Consensus Estimate of $596 million by a significant margin.

Following the release of second quarter results, the Zacks Consensus Estimate for 2013 went up 0.2% to $15.81 per share. However, the Zacks Consensus Estimate for 2014 went down 1.1% to $17.41.

Intuitive Surgical generates recurring revenues through its razor blade business model that ensures the company continued revenue generation following the initial sale of the da Vinci Si Surgical System. This enables the company to ensure a regular stream of income even in testing times.

However, ISRG faces the risk of adoption of its procedures. Adoption growth takes time, as each procedure needs to gain credibility. Furthermore, lower capital spending by hospitals particularly during the current changes emanating from healthcare reform in the U.S. and austerity measures in Europe may negatively affect its results.

Other Stocks to Look For

Most of the top peers of ISRG are currently performing well. They include Cyberonics Inc. (CYBX - Analyst Report), Echo Therapeutics, Inc. (ECTE - Snapshot Report) and Given Imaging Ltd. . All of them carry a Zacks Rank #2 (Buy).

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