Intuitive Surgical’s Solid Q1 Led By Higher da Vinci System Sales

by Trefis Team
-3.90%
Downside
459
Market
441
Trefis
ISRG
Intuitive Surgical
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Intuitive Surgical (NASDAQ:ISRG) recently posted a solid Q1 performance with a 25% jump in sales, led by an increase in da Vinci surgical systems shipments. The company’s management stated that the global procedures grew 15% in Q1, given an increased use of da Vinci in general surgery in the U.S.  The company’s other segments also did well with 21% growth in Instrument & Accessory revenues, and an 11% jump in Services revenues. Markets gave a thumbs up to the earnings, and the stock rallied over 8%, after the earnings announcement. We have a price estimate of $441 for Intuitive Surgical. We have created an interactive dashboard of the company’s expected performance in 2018. You can adjust the revenue and margin drivers to see the impact on the company’s performance.

Intuitive Surgical’s Solid Q1 Performance Led By da Vinci Systems Segment

 

We expect Intuitive Surgical’s da Vinci System revenues to grow by 9% in 2018, primarily led by higher shipments, which were up 40% (y-o-y) in Q1. Minimally invasive surgeries through da Vinci Surgical Systems are advantageous to patients, as they entail fewer and smaller incisions, less blood loss, shorter hospital stays, faster recoveries, and fewer scars than traditional open surgery. Given the benefits, more patients opt for such procedures. In fact, 238,000 da Vinci procedures were performed in Q1. For a Surgeon, da Vinci systems provide a 3-D view of the entire procedure while sitting at a console. This ease of use and improvement in outcomes should continue to drive demand from surgeons for these systems.

Looking at Instruments & Accessories revenues, we expect 18% growth in 2018, as the company continues to increase its installed base at a steady pace. While the installed base grew 13% (y-o-y) in Q1 to 4,528 units, we expect this to be much higher at 4,806 by the end of 2018. With average Instrument & Accessories spend per installed unit at $0.40 million, this will result in segment revenues of over $1.90 billion, according to our estimates. In the Services segment, revenues grew 10% in Q1, primarily due to an increase in the installed base. Since we expect a steady growth in the company’s installed base, it will aid the Services revenues, which we forecast to grow 9% to $634 million in 2018. The increased adoption of the da Vinci systems and expanded scope of procedures, require greater training, given the complexity of the systems.

Overall, Intuitive Surgical’s Q1 results were better than expectations, with a ramp up in da Vinci System sales. We believe the company’s Instruments & Accessories will be the key growth driver in the near term. We currently estimate the Instruments & Accessories segment sales to grow at a CAGR of 12% to over $3.50 billion by the end of our forecast period in 2024. We forecast a TTM price to earnings multiple of around 45 by the end of 2018, which is slightly lower than the historical average, to arrive at our price estimate of $441 for Intuitive Surgical. This implies a discount of over 5% to the current market price.

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