What’s Next For Intuitive Surgical Stock After The Recent 12% Rise?

by Trefis Team
Intuitive Surgical
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[Updated: 4/26/2021] ISRG Stock Rise

The stock price of Intuitive Surgical (NASDAQ:ISRG) has seen an 8% rise over the last five trading days, while it’s up 12% over the last ten trading sessions, after the company announced better than expected Q1 results. Intuitive Surgical’s Q1 revenue of 1.3 billion was ahead of $1.2 billion revenue forecast per Trefis estimates and $1.1 billion consensus estimates. Similarly, the company’s adjusted EPS of $3.52 per share was way higher than our forecast of $2.72, and $2.63 consensus estimate. This strong performance can be attributed to more system placements, amid a rebound in procedure volume, which grew a solid 16% in Q1. The margins also improved on the back of improved demand and controlled expenses.

The investors are more than happy with ISRG’s Q1 performance and the stock rose 10% in a single trading session, post the earnings announcement. Now that half of the U.S. population has received at least one dose of vaccine, the volume of elective surgeries is expected to rise at a faster pace, boding well for ISRG stock over the coming quarters.

Going by historical performance, there is an equal chance of a rise or decline in ISRG stock over the next month. Out of 84 instances in the last ten years that Intuitive Surgical stock saw a five-day rise of 7.7% or more, 42 of them resulted in ISRG stock rising over the subsequent one month period (twenty-one trading days). This historical pattern reflects 42 out of 84, or about 50% chance of gain in ISRG stock over the coming month. That said, given the momentum in ISRG stock, led by a strong earnings beat in Q1, and based on our Intuitive Surgical’s Valuation of $910, we believe the stock is likely to see higher levels in the near term.

[Updated: 4/16/2021] ISRG Q1 Earnings Preview

Intuitive Surgical (NASDAQ:ISRG), a fast growing medical devices company, is scheduled to report its Q1 2021 results on Tuesday, April 20. We expect Intuitive Surgical to likely beat the revenue and earnings expectations, driven by a strong rebound in total procedure volume. We expect the company to navigate well based on these trends over the latest quarter.

Furthermore, our forecast indicates that Intuitive Surgical’s valuation is around $870 per share, which is 8% higher than the current market price of around $805. Our interactive dashboard analysis on Intuitive Surgical Pre-Earnings has additional details.

(1) Revenues expected to beat the consensus estimates

Trefis estimates Intuitive Surgical’s Q1 2021 revenues to be around $1.2 Bil, slightly ahead of the $1.1 Bil consensus estimate. While a deferment of elective surgeries last year impacted the overall revenue growth in Q1 2020, the ongoing vaccination programs and gradual opening up of economies has resulted in increase in procedures volume over the recent months, and this should augur well for Intuitive Surgical’s top line growth. The company’s Q4 2020 sales were up 4% to $1.3 billion, driven by higher instruments & accessories sales, while the system revenues declined due to fewer placements. 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 Q1 2021 adjusted earnings per share (EPS) is expected to be $2.72 per Trefis analysis, over 3% above the consensus estimate of $2.63. Intuitive Surgical’s adjusted net income of $434 million in Q4 2020 reflected a 4% rise from its $417 million figure in the prior-year quarter. The decline in earnings was in-line with that of revenues, as margins remained stable. That said, the margins will likely improve going forward, as the procedure volume increases. For the full-year 2021, we expect the adjusted EPS to be higher at $12.90 compared to $10.14 in 2020.

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

Going by our Intuitive Surgical’s Valuation, with an EPS estimate of around $12.90 and a P/E multiple of around 67x in 2021, this translates into a price of $870, which is 8% above the current market price of around $805. Investors have assigned a high trading multiple for ISRG stock, given the strong revenue and earnings growth over the past years, and this trend is expected to continue going forward as well. Note that Intuitive Surgical generates recurring revenues from every system placed, driven by the instruments and accessories sales, as well as services. At the current price of $805, ISRG stock is trading at 62x its 2021 earnings, as compared to levels of over 80x seen as recently as late 2020.

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 see gains going forward, 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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