Intuitive Surgical Q2 Preview: Can da Vinci Systems Sales Continue To Drive Earnings Growth?

Intuitive Surgical (NASDAQ:ISRG) is set to report its Q2 2018 earnings on July 19, and we expect the company to post solid growth, led by its da Vinci Surgical systems shipments. The company’s other segments, including Instrument & Accessories, and Services should also do well. Both of these segments saw a double digit revenue growth in Q1, and we expect this trend to continue in the near term. The stock has been on a strong run, and it has seen a 40% increase in price year-to-date. This can be attributed to rampant sales growth for its da Vinci systems, which, in turn, is also driving accessories and services revenues. Also, the da Vinci systems have gained more regulatory approvals in the recent past, which will likely aid its future growth. We have created an interactive dashboard ~ What Is The Outlook For Intuitive Surgical ~ on the company’s expected performance in 2018. You can adjust the revenue and margin drivers to see the impact on the company’s overall revenues, earnings, and price estimate.

Expect Intuitive Surgical To Post Q2 Performance Led By da Vinci Systems Sales

We expect Intuitive Surgical’s da Vinci Systems revenues to grow in mid-high single digits in 2018, primarily led by higher shipments, which were up 40% (y-o-y) in Q1. There were more than 200,000 da Vinci procedures performed in Q1, reflecting a 15% growth (y-o-y), and this trend will likely continue, as the company expands its procedures. The company’s surgical systems have been widely adopted for select procedures. However, more procedures are being adopted at a growing rate, and we expect this trend to continue in the future. A wider range of possible procedures will likely result in greater demand for the company’s surgical systems. The company also secured the U.S. FDA approval for da Vinci Single Port platform for a urological surgical procedure, earlier this year. It will likely seek regulatory clearances for transoral, transanal, and extraperitoneal applications, thereby widening the scope of its Single Port platform. These approvals, along with its other products in the pipeline will likely drive the future growth. 

Higher da Vinci Systems Sales Will Drive Accessories & Services Revenues 

Looking at Instruments & Accessories revenues, we expect growth in high teens in 2018, as the company continues to increase its installed base at a steady pace. We forecast the installed base to be north of 4,800 by the end of 2018. The increased adoption of the da Vinci systems and expanded scope of procedures, require greater training, given the complexity of the systems. Higher installed base will also drive the Services revenue, which grew 10% in Q1. 

Overall, we expect the company to post adjusted earnings of $9.75 in 2018. We forecast a price to earnings multiple (TTM) of 45x by the end of 2018, to arrive at our price estimate of $441 for Intuitive Surgical. This implies a discount of over 15% to the current market price. It should be noted that the stock has rallied in the recent past, after the company secured the U.S. FDA approval for its single port system. We will update our model post the Q2 earnings announcement.

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