Can Intuitive Surgical Stock Trend Higher After Q4 Release?

by Trefis Team
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Intuitive Surgical (NASDAQ:ISRG), a fast growing medical devices company, is scheduled to report its fiscal Q4 2020 results on Thursday, January 21. We expect Intuitive Surgical to likely beat the revenue and earnings expectations, driven by a strong rebound in total procedures. We expect the company to navigate well based on these trends over the latest quarter.

Our forecast indicates that Intuitive Surgical’s valuation is around $820 per share, which is 18% higher than the current market price of around $780. Our interactive dashboard analysis on Intuitive Surgical Pre-Earnings has additional details.

(1) Revenues expected to be slightly ahead of consensus estimates

Trefis estimates Intuitive Surgical’s Q4 2020 revenues to be around $1.3 Bil, slightly ahead of the $1.2 Bil consensus estimate. While a deferment in elective surgeries earlier in the year amid the spread of Covid-19 impacted the overall procedure volume, the gradual opening up of economies and resumption of elective surgeries is likely to have aided sales in Q4. Intuitive Surgical’s Q3 2020 sales were up 4.5% to $1.1 billion, driven by decline in both Products and Services revenue. Our dashboard on Intuitive Surgical Revenues offers more details on the company’s segments.

2) EPS also likely to be ahead of consensus estimates

Intuitive Surgical’s Q4 2020 adjusted earnings per share (EPS) is expected to be $3.26 per Trefis analysis, over 4% above the consensus estimate of $3.12. Intuitive Surgical’s adjusted net income of $334 million in Q3 2020 reflected a 18% drop from its $409 million figure in the prior-year quarter. This can be attributed to higher tax expenses and increased costs during the pandemic. That said, the margins will likely improve going forward, as the procedure volume increases. For the full-year, we expect the adjusted EPS to be lower at $9.21 compared to $13.42 in 2019.

(3) Stock price estimate higher than the current market price

Going by our Intuitive Surgical’s Valuation, with an EPS estimate of around $9.21 and a P/E multiple of around 89x in 2020, this translates into a price of $820, which is 5% above the current market price of around $780. Although the 89x figure is higher than levels of under 50x seen over the recent years, the multiple is based on 2020 earnings, which we know are being impacted by the pandemic, but as we look forward Intuitive Surgical is expected to post strong sales and earnings growth in 2021 and beyond. Going by the 2021 earnings estimate of $14.20, ISRG stock is trading at 55x, which is closer to the range seen over the recent years.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year

While ISRG stock may be undervalued, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Pfizer vs Merck.

See all Trefis Price Estimates and Download Trefis Data here

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