On Jan 29, 2013, we retained Intuitive Surgical (ISRG - Analyst Report), the pioneer in minimally invasive robotic surgery, at Outperform following its strong results for the fourth quarter 2012. The company has delivered positive earnings and sales surprises in each of the last four quarters.
Why the Retention?
Intuitive Surgical announced fourth quarter 2012 results on Jan 22. Fourth quarter earnings per share came in at $4.25 well above the Zacks Consensus Estimate of $4.03. Intuitive Surgical reported revenues of $609.3 million for the fourth quarter, up 22.6% year over year and surpassing the Zacks Consensus Estimate of $584 million.
Over the last 30 days, the Zacks Consensus Estimate for 2013 has moved up by 10 cents to $17.60. Moreover, the Zacks Consensus Estimate for 2014 has risen 6 cents to $20.48 during the same period.
The Intuitive Surgical growth story remains compelling. The company issued favorable guidance for 2013. Intuitive Surgical expects procedure count to increase by 20% to 23% for 2013 propelled by general surgery and gynecology procedures in the domestic market and overseas prostatectomy procedures. The company expects revenues to grow in the range of 16% to 19% for 2013 with higher sales in the fourth quarter than in the first quarter. Operating income is expected in a band of 38% to 39% of sales for 2013.
Intuitive Surgical’s recurring revenue stream continues to be robust and provides a shield against cyclicality of revenues, arising from the sale of discretionary capital equipment to hospitals. Recurring revenues increased 27% year over year in the fourth quarter 2012 and constituted 57% of revenues.
However, we believe that until the global economy recovers, the stock may come under pressure as investors ponder whether lingering macro economic uncertainty will weaken hospitals’ commitment to buy high-cost robotic systems. In the meantime, the installed base of the company continues to grow as hospitals feel compelled to upgrade their technology. Intuitive competes with Accuray Incorporated (ARAY - Analyst Report) in certain niches.
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