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Intuitive Surgical (ISRG - Analyst Report) reported favorable third-quarter 2011 results. Earnings per share came in at $3.05, beating the Zacks Consensus Estimate of $2.76 and the year-ago figure of $2.14. Net income climbed 41.3% year over year to $122.4 million.

Second Quarter Review

Revenues increased 30% year over year to $446.7 million, beating the Zacks Consensus Estimate of $416 million.

Instruments and accessories revenues were $175.8 million in the quarter, up 38% year over year. Worldwide procedures increased 30%. The company posted total systems revenue of $199.1 million in the quarter, up 25%. Services/Training revenues were $71.8 million in the quarter, up 25% year over year, primarily due to growth in the installed base of da Vinci Surgical systems.

We have discussed the quarterly results at length here: Intuitive Beats Soundly

Agreement – Estimate Revisions

Estimates for fiscal 2011 demonstrate an upward trend among the vast majority of analysts since the announcement of the third quarter results. Out of 15 analysts covering the stock, 13 have raised their estimates, for the current year, over the last 30 days with no downward revision. There was no movement in either direction during the past week. Movement of estimates for 2012 replicated the current year.

Magnitude – Consensus Estimate Trend

Positive revisions, coupled with sheer directional agreement, have led to an increase in annual forecasts for Intuitive Surgical. There has been an increase in estimates of 38 cents for 2011, and 53 cents for 2012, over the last 30 days. The current Zacks Consensus Estimate for fiscal 2011 is $11.86, reflecting an estimated 25.25% year-over-year increase.

Intuitive Remains “Neutral”

We expect a number of procedures that are currently completed either in an open surgical manner or with laparoscopy to be eventually replaced by da Vinci surgery, as robotic surgery becomes the standard of care in many instances. The company enjoys a virtual monopoly in robotic surgery with little competition.

Intuitive’s recurring revenue stream continues to grow and provides a shield against cyclicality of revenues, arising from the sale of discretionary capital equipment to hospitals. However, we believe that until the global economy recovers, the stock may come under pressure as investors ponder whether lingering macro economic uncertainty weakens hospitals’ commitment to buy high-cost robotic systems.

The pace of adoption of robotic surgery may therefore be lumpy and growth in usage requires acceptance from patients and training to medical practitioners. Intuitive competes with Accuray Incorporated (ARAY - Analyst Report) in certain niches.

We prefer to remain on the sidelines partly due to high valuation, which factors in the attractive growth prospects of the company, despite the da Vinci system’s leading status as an enabler of robotic minimally invasive surgery. We currently have a Neutral recommendation on the stock.

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/.

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