Intuitive Surgical (NYSE:ISRG), a developer of robotic surgical systems called da Vinci Surgical System, is set to release its Q4 2012 earnings on January 22. We expect high double digit revenue growth as Q4 is usually a seasonally strong quarter in the U.S. We also expect sales in Japan to boost growth and margins overall should be stable.
Last month we launched coverage of Intuitive Surgical with a price estimate of about $600 for the company’s stock, which is about a 15% premium to the current market price.
Japan And US Grow
We expect incremental growth in da Vinci Surgical Systems in the U.S. as more hospitals adopt da Vinci Surgical Systems following strong marketing and sales efforts from the medical device maker. In addition to this, we will play close attention to sales results from Japan. After its launch in Japan, the system has seen strong demand in the country. In Q3, the company sold 16 da Vinci systems in Japan,  significantly higher than the previous periods.
During Q3 earnings, management outlined their efforts to tap the market by increasing the size of the sales force. The medical device maker also opened two training centers in Japan during 2012, and we expect these efforts to translate into a significant increase in the number of systems sold during the quarter. Europe, however, could continue to see a decline in the number of systems sold as hospitals are still reluctant to shell out a big amount on these systems amid the economic slowdown.
The medical devices maker, however, could witness a slowdown in the growth in prostatectomies (prostate surgery) procedures performed through the system. In May 2012, the U.S. Preventive Services Task Force recommended against routine PSA screening (Prostate-Specific Antigen test to screen Prostate cancer) before being diagnosed as it did not benefit patients.  And, fewer PSA tests would result in fewer prostate surgery. We expect pick-up in other procedures like gynecological and general surgery to more than offset the same.
Increasing Spending and Recurring Demand To Add To Growth
Instruments and accessories are a set of devices that facilitate the use of da Vinci Surgical Systems. Thus, the demand for instruments and accessories is directly proportional to the da Vinci systems. While instrument and accessories revenue will increase due to a greater installed base, the key would be if Intuitive Surgical continues to see a steady increase in average instrument and accessories spend per installed unit. This could be attributable to the wider scope of procedures as well as a greater number of procedures performed as more use speeds up the replacement cycle. These instruments and accessories have a limited life and need to be replaced periodically.Notes: