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Should ISRG Stock Be Part of Your Portfolio Ahead of Q3 Earnings?
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Intuitive Surgical, Inc. (ISRG - Free Report) is set to report third-quarter 2024 earnings on Oct. 17. The Zacks Consensus Estimate for sales and earnings is pegged at $2.02 billion and $1.65 per share, respectively. Earnings per share estimates for ISRG have remained stable at $6.67 and $7.66 for 2024 and 2025, respectively, over the past 60 days.
Intuitive Surgical’s close peers, Thermo Fisher Scientific (TMO - Free Report) and Medtronic (MDT - Free Report) , are slated to announce their quarterly numbers in the upcoming few weeks. Stay up-to-date with all quarterly releases: See ZacksEarnings Calendar.
Estimate Movement
Image Source: Zacks Investment Research
In the last reported quarter, ISRG delivered an earnings surprise of 16.34%. Its earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 8.97%.
Image Source: Zacks Investment Research
Earnings Whisper
Our proven model does not conclusively predict an earnings beat for ISRG this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
ISRG reported sales of $3.27 billion in the first half of 2024, indicating growth of 13.5% year over year, driven by solid procedure performance and strong capital placements.
The Instruments & Accessories segment’s upcoming quarterly results are likely to report robust third-quarter results on the back of several favorable factors, especially strong da Vinci procedure growth. During the second quarter, procedure growth of 17% was led by cholecystectomy, colon resection, lung resection and foregut procedures. These are likely to have been the key drivers during the third quarter. General surgery procedures are likely to have aided procedure growth in the U.S. market, while non-urology procedures must have benefited ex-U.S. markets. Procedures with Ion platform are also likely to have exhibited robust growth. However, declining demand for bariatric procedures, especially in the United States, might have partially offset the growth.
Apart from rising procedure demand, improving pricing of da Vinci instrument and accessory, should have aided segmental sales growth during the soon-to-be-reported quarter. During the last reported quarter, ISRG reported revenue per procedure of approximately $1,800, up approximately $20 on a sequential basis. However, an unfavorable currency movement is expected to have partially offset the gains from recovering demand in procedures.
Moreover, China's recovery, fueled by strong procedure growth following COVID-related setbacks in the past year, is likely to have boosted sales in the soon-to-be-reported quarter. Apart from China, rising adoption in Japan and India might have aided sales growth.
The Systems segment’s results are expected to reflect strong adoption of newly-launched da Vinci 5. During the second quarter, ISRG placed 70 da Vinci 5 systems in the United States. Although total da Vinci system placements in the United States and Europe might have declined year over year, robust system placements in the Asia-Pacific region are likely to have more than offset the same. Rising adoption in new geographies like India and Australia should have aided ex-U.S. system placement in the third quarter. System placements in China are likely to have been under pressure amid delayed tenders and emerging domestic robotic systems.
Apart from improved system placements globally, segmental revenues are likely to have been aided by higher average selling price per unit, which improved 3.6% year over year in the second quarter. Ion system placements should have remained strong during the third quarter. However, the pace might have been slower as ISRG completed all backlog orders in the second quarter.
The Services segment’s third-quarter results will likely reflect strong adoption of ISRG’s digital products and services, including Intuitive App and Intuitive Hub.
Meanwhile, ISRG’s margins are likely to have improved on the back of cost reductions and fixed overhead leverage. Moreover, lower inventory reserves and reduced freight rates should have aided margins. However, depreciation expense is likely to have increased, hurting margins. ISRG expects proforma gross margin to be in the 68.5-69% range for 2024. Operating expenses are likely to increase 10-13%.
Price Performance & Valuation
Intuitive Surgical’s shares have appreciated 28.8% in the past six months, significantly above the industry’s 4.2% growth. The company’s shares have also outperformed the S&P 500 Index’s rise of 15% and the Zacks Medical sector’s growth of 8.2%.
ISRG has also outperformed Thermo Fisher Scientific’s 8.9% return and Medtronics’ 13.6% gain in the past six months.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Now, let us take a look at the value Intuitive Surgical offers to its investors at current levels.
Currently, ISRG is trading at a premium compared to its industry, with a forward 12-month P/E of 65.48X compared with the industry’s 32.6X. However, the current valuation came down from a high of 87.37X and is also lower than the five-year median of 69.39X. ISRG has traded at a premium to the industry valuation in the past five years, reflecting the company's higher growth prospects. We expect the trend to continue going forward. The current Value score of F reflects stretched valuation.
ISRG's P/E F12M Graph
Image Source: Zacks Investment Research
Investment Thesis
Intuitive Surgical is likely to continue its strong performance in the rest of 2024, driven by continued growth in the company’s da Vinci procedure volume and strong Ion procedure growth. ISRG is also increasing the pricing of procedures, which should aid in sales growth going forward. Improving procedure volume, along with better system placements and services across all markets, should drive top-line growth this year.
The launch of da Vinci SP in Europe and da Vinci 5 in the U.S. market should drive system placements higher. However, weakness in bariatric procedures and challenges in China are likely to offset growth in the upcoming quarters.
Conclusion
ISRG’s unfavorable Earnings ESP does not indicate any significant move following the earnings result. We believe that investors should not rush into buying the stock now. Although ISRG has a favorable Zacks Rank, the Style Score of F does not reflect a major strength in the stock. The company’s high valuation may have factored in the strong fundamentals, including growth in procedures and installed base. Investors should add the stock to their watchlist and track it for cheaper valuation.
While current shareholders should hold their position, new investors should wait for the stock to retract some of its recent gains, providing a better entry point.
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Should ISRG Stock Be Part of Your Portfolio Ahead of Q3 Earnings?
Intuitive Surgical, Inc. (ISRG - Free Report) is set to report third-quarter 2024 earnings on Oct. 17. The Zacks Consensus Estimate for sales and earnings is pegged at $2.02 billion and $1.65 per share, respectively. Earnings per share estimates for ISRG have remained stable at $6.67 and $7.66 for 2024 and 2025, respectively, over the past 60 days.
Intuitive Surgical’s close peers, Thermo Fisher Scientific (TMO - Free Report) and Medtronic (MDT - Free Report) , are slated to announce their quarterly numbers in the upcoming few weeks. Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
Estimate Movement
Image Source: Zacks Investment Research
In the last reported quarter, ISRG delivered an earnings surprise of 16.34%. Its earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 8.97%.
Image Source: Zacks Investment Research
Earnings Whisper
Our proven model does not conclusively predict an earnings beat for ISRG this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
ISRG has an Earnings ESP of 0.00% and a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors to Note
ISRG reported sales of $3.27 billion in the first half of 2024, indicating growth of 13.5% year over year, driven by solid procedure performance and strong capital placements.
The Instruments & Accessories segment’s upcoming quarterly results are likely to report robust third-quarter results on the back of several favorable factors, especially strong da Vinci procedure growth. During the second quarter, procedure growth of 17% was led by cholecystectomy, colon resection, lung resection and foregut procedures. These are likely to have been the key drivers during the third quarter. General surgery procedures are likely to have aided procedure growth in the U.S. market, while non-urology procedures must have benefited ex-U.S. markets. Procedures with Ion platform are also likely to have exhibited robust growth. However, declining demand for bariatric procedures, especially in the United States, might have partially offset the growth.
Apart from rising procedure demand, improving pricing of da Vinci instrument and accessory, should have aided segmental sales growth during the soon-to-be-reported quarter. During the last reported quarter, ISRG reported revenue per procedure of approximately $1,800, up approximately $20 on a sequential basis. However, an unfavorable currency movement is expected to have partially offset the gains from recovering demand in procedures.
Moreover, China's recovery, fueled by strong procedure growth following COVID-related setbacks in the past year, is likely to have boosted sales in the soon-to-be-reported quarter. Apart from China, rising adoption in Japan and India might have aided sales growth.
The Systems segment’s results are expected to reflect strong adoption of newly-launched da Vinci 5. During the second quarter, ISRG placed 70 da Vinci 5 systems in the United States. Although total da Vinci system placements in the United States and Europe might have declined year over year, robust system placements in the Asia-Pacific region are likely to have more than offset the same. Rising adoption in new geographies like India and Australia should have aided ex-U.S. system placement in the third quarter. System placements in China are likely to have been under pressure amid delayed tenders and emerging domestic robotic systems.
Apart from improved system placements globally, segmental revenues are likely to have been aided by higher average selling price per unit, which improved 3.6% year over year in the second quarter. Ion system placements should have remained strong during the third quarter. However, the pace might have been slower as ISRG completed all backlog orders in the second quarter.
The Services segment’s third-quarter results will likely reflect strong adoption of ISRG’s digital products and services, including Intuitive App and Intuitive Hub.
Meanwhile, ISRG’s margins are likely to have improved on the back of cost reductions and fixed overhead leverage. Moreover, lower inventory reserves and reduced freight rates should have aided margins. However, depreciation expense is likely to have increased, hurting margins. ISRG expects proforma gross margin to be in the 68.5-69% range for 2024. Operating expenses are likely to increase 10-13%.
Price Performance & Valuation
Intuitive Surgical’s shares have appreciated 28.8% in the past six months, significantly above the industry’s 4.2% growth. The company’s shares have also outperformed the S&P 500 Index’s rise of 15% and the Zacks Medical sector’s growth of 8.2%.
ISRG has also outperformed Thermo Fisher Scientific’s 8.9% return and Medtronics’ 13.6% gain in the past six months.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Now, let us take a look at the value Intuitive Surgical offers to its investors at current levels.
Currently, ISRG is trading at a premium compared to its industry, with a forward 12-month P/E of 65.48X compared with the industry’s 32.6X. However, the current valuation came down from a high of 87.37X and is also lower than the five-year median of 69.39X. ISRG has traded at a premium to the industry valuation in the past five years, reflecting the company's higher growth prospects. We expect the trend to continue going forward. The current Value score of F reflects stretched valuation.
ISRG's P/E F12M Graph
Image Source: Zacks Investment Research
Investment Thesis
Intuitive Surgical is likely to continue its strong performance in the rest of 2024, driven by continued growth in the company’s da Vinci procedure volume and strong Ion procedure growth. ISRG is also increasing the pricing of procedures, which should aid in sales growth going forward. Improving procedure volume, along with better system placements and services across all markets, should drive top-line growth this year.
The launch of da Vinci SP in Europe and da Vinci 5 in the U.S. market should drive system placements higher. However, weakness in bariatric procedures and challenges in China are likely to offset growth in the upcoming quarters.
Conclusion
ISRG’s unfavorable Earnings ESP does not indicate any significant move following the earnings result. We believe that investors should not rush into buying the stock now. Although ISRG has a favorable Zacks Rank, the Style Score of F does not reflect a major strength in the stock. The company’s high valuation may have factored in the strong fundamentals, including growth in procedures and installed base. Investors should add the stock to their watchlist and track it for cheaper valuation.
While current shareholders should hold their position, new investors should wait for the stock to retract some of its recent gains, providing a better entry point.