Temporary Slowdown Looking Likely For Intuitive Surgical

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Intuitive Surgical

Intuitive Surgical’s (NYSE:ISRG) second quarter results weren’t bad, but they failed to live up to the market’s expectations. The stock fell nearly 5% following the earnings announcement, which stems from the expectation of a more moderate second half of the year. The earnings presented a mixed outlook for Intuitive. While the fundamentals remain strong and we are positive about the adoption of robotic surgery, near-term headwinds could cause a minor dent in earnings. Below are a few key takeaways from Intuitive Surgical’s earnings.

Our price estimate of $896 for Intuitive Surgical is less than 5% below the market.

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Growth In Procedures Slowing, International Headwinds

The growth in the number of procedures performed using Intuitive Surgical’s devices stood at 16% in Q2, which was lower than the growth figure in Q1. The figure is expected to come down further in the next two quarters. Procedure growth started accelerating two years ago, and the deceleration in 2017 may fuel fears that the growth might have peaked. Further, the company is likely to face headwinds in Europe, China and Japan in the second half of the year. Intuitive’s growth in Europe is moderating, and the lack of new system quota in China and reimbursement limitations in Japan could weigh on growth in the near term. We don’t see a lot of room for the stock to run up further this year.

Having said that, the outlook for robotic surgery is healthy despite high capital investment considerations. Intuitive has launched the da Vinci X surgical system, which should help it capture market share in price sensitive geographies. We expect the average pricing to continue to decline, as the competition from Medtronic and Verb Surgical heats up going forward. Medtronic has been working on building its own surgical robot and plans to launch it in 2018. Verb Surgical, a joint venture formed between Alphabet and Johnson & Johnson in 2015, is working on integrating big data and machine learning with robotic surgery. There are also other companies, such as TransEntrix and Titan Medical, which are working on creating competing products. This will likely result in some pricing and market share pressure for Intuitive.

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