Intuitive Surgical (NASDAQ:ISRG), Inc. ISRG is well poised for growth on improving adoption of da Vinci Surgical System, strong international presence and robust recurring revenue base. However, weak operational performance remains a concern.
Shares the company have gained 36.2% compared with the industry’s growth of 18.8% in a year’s time. Meanwhile, the S&P 500 Index has rallied 17.1% in the same time frame.
The company, with a market capitalization of $94.65 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 8.7% over the next five years. Moreover, it has beat estimates in each of the trailing four quarters, the average surprise being 69.4%.
Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).
What’s Deterring the Stock?
Intuitive Surgical witnessed weak operational performance in the third quarter.
Notably, adjusted gross profit was $756.8 million, down 6.8% year over year. As a percentage of revenues, gross margin in the quarter was 67.2%, down 240 basis points (bps). Adjusted operating income totaled $402.4 million, down 12.9% year over year. As a percentage of revenues, operating margin in the quarter was 25.1%, down 730 bps.
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 third-quarter 2020, da Vinci procedures grew 7% globally compared with the prior-year quarter and also increased 36% on a sequential basis. On an overall basis, the recovery of procedures happened gradually during the third quarter and reached to approximately 90% of pre-COVID-19 levels by the end of the quarter under review. Moreover, Intuitive Surgical placed 5865 da Vinci surgical systems in the third quarter, with the installed base growing 8% year over year.
The company is gradually gaining prominence in markets outside the United States. In third-quarter 2020, international revenues were $316.6 million, up 1% on a year-over-year basis. The improvement can be attributed to solid procedure growth in Asia.
Outside the United States, the company placed 79 systems in the third quarter compared with 90 in the prior-year quarter. Of these, 39 were in Europe, 15 in Japan and 12 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. 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 2021, the Zacks Consensus Estimate for revenues is pegged at $4.98 billion, indicating growth of 16.5% from the prior-year quarter. The same for earnings stands at $13.06 per share, suggesting an improvement of 35% from the year-ago reported figure.
Stocks to Consider
Some better-ranked stocks from the broader medical space are Merit Medical Systems (NASDAQ:MMSI), Inc. MMSI, Patterson Companies (NASDAQ:PDCO), Inc. PDCO and McKesson Corporation (NYSE:MCK) MCK, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Merit Medical has a projected long-term earnings growth rate of 12.6%.
Patterson Companies has an estimated long-term earnings growth rate of 9.6%.
McKesson has a projected long-term earnings growth rate of 6.6%.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.4% per year.
These 7 were selected because of their superior potential for immediate breakout.
See these time-sensitive tickers now >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Intuitive Surgical, Inc. (ISRG): Free Stock Analysis Report
McKesson Corporation (MCK): Free Stock Analysis Report
Merit Medical Systems, Inc. (MMSI): Free Stock Analysis Report
Patterson Companies, Inc. (PDCO): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research