What Will Drive Intuitive Surgical’s Near Term Growth

by Trefis Team
Intuitive Surgical
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Intuitive Surgical (NASDAQ:ISRG) has seen a double digit growth in its installed base in the recent quarters, and this has aided its Instruments & Accessories, as well as Services revenue growth. Also, increased da Vinci Surgical systems shipments is aiding the Products segment revenues. We expect this trend to continue in the near term, led by expansion of procedures, and drive the earnings growth for the company. 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.

Growth In Installed Base Will Aid Products And Services Revenue

We forecast Intuitive Surgical’s installed base to grow by 13% in 2018 to around 5,000 units. However, we expect the average pricing to decline for both products as well as instruments & accessories, in line with the trend seen in H1 2018, due to an increase in trade-in transactions. Trends in pricing will also impact the gross margins, and we forecast a slight decline in the near term. da Vinci Surgical Systems revenues will likely grow in low double digits, due to a continued growth in procedures, In fact, procedures were up in high teens in the previous quarter.

Note that the company’s surgical systems have been widely adopted only for select procedures. However, more procedures are being adopted at a growing rate, and we expect this trend to continue, and drive the long term growth. A wider range of possible procedures will likely result in greater demand for the company’s surgical systems.

Intuitive Surgical’s focus on new systems will also aid its future growth. The company secured the U.S. FDA approval for its da Vinci SP surgical system for neurologic surgical procedures in the previous quarter, and it expects the shipments to begin around early Q4. Meanwhile, a growth in installed base will result in higher recurring revenues from Instruments & Accessories sales, as well as Services. The increased adoption of the da Vinci systems and expanded scope of procedures, require greater training, given the complexity of the systems. The company also enters into service agreements at the time of sale, and as the installed base grows, Services revenues are also expected to rise. 

Overall, we expect the da Vinci System sales to continue to grow and drive earnings growth, along with continued growth in the installed base, which will drive the future recurring revenues. We currently forecast earnings of $10.15 per share in 2018, and have a $543 price estimate for Intuitive Surgical, which is slightly above the current market price.


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