Intuitive Surgical Will Likely See Steady Earnings Growth Led By Higher Installed Base

by Trefis Team
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Intuitive Surgical (NASDAQ:ISRG) has seen strong 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 system shipments is aiding the company’s overall top line growth. We expect this trend to continue in the near term, led by increased adoption 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 for the full year 2018 and 2019. You can adjust the drivers to see the impact on the company’s earnings and price estimate.

Total Installed Base Will Likely See Strong Growth Driving Instruments & Accessories And Services Revenue

Intuitive Surgical’s installed base has seen steady growth in the recent past, and currently stands at 4,814 units. We forecast it to grow to approximately 5,630 units by the end of 2019. This can primarily be attributed to increased adoption of procedures, which will likely drive the demand for da Vinci systems. In fact, procedures grew in the high teens for the nine month period ending September 2018. We expect this trend to continue in the near term, partly led by new launches, such as the da Vinci SP surgical system, which first received the U.S. FDA approval for urologic surgical procedures in Q2 this year, and the company recently has submitted the application for transoral procedures.

The growth in the company’s installed base of surgical systems will result in higher Instruments & Accessories, and Services revenues. Note that the increased adoption of the da Vinci systems and expanded scope of procedures, require greater training, maintenance, and materials, given the complexity of the systems. Instruments & Accessories, along with Services, are the company’s recurring revenue stream, which accounts for 72% of the total revenues. A higher proportion of recurring revenues will ensure lower fluctuation in the top line in the coming years. Note that the overall surgical robotic market is expected to grow at a CAGR of 8.5% from $56 billion in 2017 to over $98 billion in 2024, according to a research report. This can be attributed to a rise in neurological disorders, and increased healthcare spending, among others factors. The overall growth in the market will bode well for Intuitive Surgical.

Overall, we expect the da Vinci System sales to continue to grow steadily in the near term and the higher installed base to drive the future recurring revenues and earnings growth for the company. We currently forecast earnings of $9.52 per share in 2018, and have a $554 price estimate for Intuitive Surgical, which is at a premium of over 10% to the current market price.

 

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