What To Expect From Intuitive Surgical’s Q3?

by Trefis Team
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Intuitive Surgical (NASDAQ:ISRG), a fast growing robotic surgical platform company, is scheduled to report its Q3 2021 results on Tuesday, October 19. We expect Intuitive Surgical to likely to report mixed earnings with revenue slightly below and earnings to be above the consensus estimates. With the rise of the delta variant and Covid-19 cases in the U.S. over the last few months, it is likely that Intuitive Surgical’s sales were adversely impacted. That said, our forecast indicates that Intuitive Surgical’s valuation is around $345 per share, which is 6% above the current market price of $345, implying that ISRG stock still has some room for growth, in our view. Our interactive dashboard analysis on Intuitive Surgical Pre-Earnings has additional details.

(1) Revenues expected to fall short of the consensus estimate

Trefis estimates Intuitive Surgical’s Q3 2021 revenues to be around $1.34 billion, slightly below the $1.39 billion consensus estimate. The ongoing vaccination programs and gradual opening up of economies has resulted in an increase in procedures volume over the recent quarter, and this should augur well for Intuitive Surgical’s top line growth, when compared to the prior year quarter. However, the recent surge in Covid-19 cases may have adversely impacted the overall revenue growth for the company.  da Vinci procedure volume grew a stellar 68% in Q2 2021, driving total sales 72% higher to $1.46 billion. Sales growth reflect higher instruments & accessories sales, as well as an increase in system placements. Intuitive Surgical placed 328 systems last quarter, compared to 178 systems in the prior year quarter. Note that it was a favorable comparison to Q2 2020, which was significantly impacted from deferment of elective surgeries, amid the lockdowns. Our dashboard on Intuitive Surgical Revenues offers more details on the company’s segments.

2) EPS likely to be ahead of consensus estimates

Intuitive Surgical’s Q3 2021 adjusted earnings per share (EPS) is expected to be $1.22 per Trefis analysis, slightly above the consensus estimate of $1.17. Intuitive Surgical’s adjusted net income of $477 million in Q2 2021 reflected a large 3.6x rise from its $132 million figure in the prior-year quarter. The rise in earnings was higher than revenues due to over 1700 bps expansion of net margins, driven by lower operating expenses (as a percentage of revenue) as well as lower taxes. We believe that margins will remain strong going forward, as the procedure volume increases. For the full-year 2021, we expect the adjusted EPS to be higher at $4.96 compared to $3.38 in 2020.

(3) Stock price estimate above the current market price

Going by our Intuitive Surgical’s Valuation, with an EPS estimate of around $4.96 and a P/E multiple of around 70x in 2021, this translates into a price of $345, which is 6% above the current market price of around $326. 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.

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 more 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.

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