Expect Intuitive Surgical’s Earnings To Grow In Low Teens In 2019 Led By Continued Growth In Procedures

by Trefis Team
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Intuitive Surgical (NASDAQ:ISRG) recently reported its Q4 2018 results, which were in line with our estimates. Revenues grew in high teens led by double digit growth in all three segments – Instruments & Accessories, Systems, and Services. This can be attributed to continued growth in overall procedures, which were up 19% for the quarter. However, earnings grew in the low teens, due to higher costs associated with new products.  Looking forward, we expect this trend to continue, and forecast the overall revenue and earnings growth to be in the low teens. This will be led by higher recurring revenues, given the continued expansion of the da Vinci systems installed base. We have created an interactive dashboard ~ A Quick Snapshot of Intuitive Surgical’s Q4 Performance And Trefis Estimates For The Full Year 2019. You can adjust various drivers to see the impact on the company’s earnings and price estimate.

Expect Revenues And Earnings To Grow In Low Teens In 2019

We forecast Intuitive Surgical’s da Vinci systems revenues to grow in high teens to north of $1.30 billion in 2019. The company continues to see strong growth for procedures, which will likely continue in the near term, and beyond. The overall minimally invasive surgical systems market is expected to grow in high single digits to over $40 billion in the coming years. This can be attributed to the benefits associated with the minimally invasive surgeries, such as fewer and smaller incisions, less blood loss, shorter hospital stays, faster recoveries, and fewer scars than traditional open surgery. These relative advantages will likely lead to more patients opting for such procedures as opposed to open surgeries, which should drive demand for the company’s systems in the near term, and beyond.

Intuitive Surgical’s installed base has seen steady growth in the past, and currently stands around 5,000 units. We forecast it to grow to approximately 5,500 units in 2019, led by growth in procedures. New products, such as the da Vinci SP surgical system, should further aid the shipments in the near term. Instruments & Accessories, and Services revenue will likely trend higher given the growth in installed base. Note that these systems require training, maintenance, and materials, given the complexity of the systems. As such, with the growth in the installed base, Instruments & Accessories and Services revenue are also expected to rise.

Looking at margins, the company has guided for a 50-150 bps decline in gross margins, and higher expenses, due to costs associated with the expansion in the emerging markets, primarily China, India, and Taiwan. Accordingly, we forecast a slight decline in the overall adjusted earnings margins for the full year 2019, translating into earnings of $12.50 per share on an adjusted basis. Our price estimate of $563 for Intuitive Surgical is based of a 45x forward price to earnings multiple.

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