Procedure Growth Likely To Remain Strong For Intuitive Surgical
Intuitive Surgical’s (NYSE:ISRG) stock jumped nearly 6.5% following its Q1 2017 earnings announcement. So, was the investor enthusiasm justified? We think so, considering that the growth in the number of procedures performed using da Vinci surgical systems accelerated to 18% in the first quarter. This is critical because the growth in instruments and accessories revenue closely follows the growth in the number of procedures, and is a recurring source of revenue. According to our estimates, this revenue source accounts for nearly 50% of Intuitive Surgical’s value. We had stated in an earlier note that Q1 2017 results should be seen as an important catalyst which can set expectations for the rest of the year. Needless to say, the results catalyzed investor activity and Intuitive exceeded our growth expectations. This wasn’t an easy task, considering that Intuitive’s performance has been mixed in China and Brazil, which are key growth markets, and more instruments are being placed under operating leases. While we don’t expect such stellar growth in the remaining quarters of the year, we believe that Intuitive has offered an optimistic outlook for da Vinci’s adoption.
Our price estimate of $747 for Intuitive Surgical is nearly 10% below the market. We are reviewing our price estimate in light of recent earnings and will update it shortly.
The growth in procedures was not just driven by mature categories such as urology and gynecology, but also the emerging category of general surgery. The company has observed strong surgeon interest and an encouraging utilization rate of da Vinci systems in general surgery. Overall, procedures grew at a healthy rate in international markets including Europe, Korea and China this quarter. In addition, the company also saw its revenue per procedure increase to nearly $1,840 compared to $1,830 in Q1 2016. It plans to invest in a new technology upgrade – da Vinci X – over the next few quarters, contingent on regulatory approvals. The company hasn’t given much information on the price point at this time but it appears that da Vinci’s adoption is likely to expand at a healthy rate.
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