Intuitive Surgical Stock Looks Attractive After Its Recent Fall

ISRG: Intuitive Surgical logo
Intuitive Surgical

[Updated: Jan 27, 2022] Intuitive Surgical Q4 Earnings Update

Intuitive Surgical (NASDAQ:ISRG) reported its Q4 results last week, with revenue above, but earnings falling short of our estimates. The company reported revenue of $1.55 billion (up 17% y-o-y), marginally above our forecast of $1.53 billion and the consensus estimate of $1.52 billion. Intuitive Surgical’s EPS of $1.30 was up 9% y-o-y, and it was lower than our forecast of $1.32. However, the company was able to beat the consensus estimate of $1.28. All three segments – Instruments & Accessories, Products, and Services saw revenue growth. Our dashboard on Intuitive Surgical Revenues offers more details on the company’s segments.

Despite an earnings beat (compared to the consensus estimates), ISRG stock has seen a large fall of 10% last week, underperforming the broader markets, with the S&P500 falling 4%. This can be attributed to the company’s guidance for 2022. The company’s management in its quarterly earnings conference call stated that it expects significant adverse impact on procedures in Q1 2022, owing to the spread of Omicron. The trend may continue beyond Q1 as well. Furthermore, the company will increase its capital expenditures to build new facilities. This outlook did not sit well with the investors, evident from the price drop.

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We have also updated our model following the company’s recently announced Q4 results. We have revised our Intuitive Surgical Valuation  to be around $345 per share (vs. $362 earlier) which is 30% above the current market price of $264. This represents a P/E multiple of 69x for the company based on our EPS forecast of $5.00 for Intuitive Surgical in 2022. Overall, after the recent fall, ISRG stock looks attractive at its current levels, and investors can use the current dip to achieve long term gains, in our view.


[Updated: Jan 19, 2022] Intuitive Surgical Q4 Earnings Preview

Intuitive Surgical (NASDAQ:ISRG), a fast growing robotic surgical platform company, is scheduled to report its Q4 2021 results on Thursday, January 20. We expect Intuitive Surgical to likely report revenue and earnings slightly above the consensus estimates.

With the rise of the Omicron and Covid-19 cases in the U.S. since December, it is likely that Intuitive Surgical’s sales in certain geographies were adversely impacted. Just like the previous waves, a higher number of cases can overwhelm the healthcare services in certain geographies, resulting in postponement of elective surgeries, and obstruct the revenue growth seen over the recent quarters.

That said, our forecast indicates that Intuitive Surgical’s valuation is around $360 per share, which is 17% above the current market price of $307, implying that ISRG stock has some room for growth, in our view. Our interactive dashboard analysis on Intuitive Surgical Pre-Earnings has additional details.

(1) Revenues expected to be above the consensus estimate

Trefis estimates Intuitive Surgical’s Q4 2021 revenues to be around $1.53 billion, slightly above the $1.52 billion consensus estimate. The ongoing vaccination programs and gradual opening up of economies has resulted in an increase in procedures volume in 2021, 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 due to the spread of more contagious variants may adversely impact the overall revenue growth for the company in the near term. da Vinci procedure volume grew 20% in Q3 2021, driving total sales 30% higher to $1.40 billion.

Intuitive Surgical expects $1.55 billion sales in Q4 and 19% growth in procedure volume, as per the preliminary results.  Sales growth reflect higher instruments & accessories sales, as well as an increase in system placements. Intuitive Surgical placed 385 systems in Q4, compared to 326 systems in the prior year quarter. 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 Q4 2021 adjusted earnings per share (EPS) is expected to be $1.32 per Trefis analysis, slightly above the consensus estimate of $1.28. Intuitive Surgical’s adjusted net income of $435 million in Q3 2021 reflected a good 30% rise from its $334 million figure in the prior-year quarter.

The rise in earnings was driven by higher revenues and margin expansion. We believe that margins will remain strong going forward, as the procedure volume increases. However, the inflationary pressure may impact the margins in the near term. For the full-year 2022, we expect the adjusted EPS to be higher at $5.70 compared to $3.38 in 2020 and an estimated $5.00 in 2021.

(3) Stock price estimate more than 15% above the current market price

We estimate Intuitive Surgical’s Valuation to be around $361 per share which is 17% above the current market price. This represents a P/E multiple of 72x and our EPS estimate of $5.00 for the company in 2021. 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: 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 Intuitive Surgical stock is likely to move higher in the near term, there are several peers in its sector that look like a better bet than Intuitive Surgical. Check out how Intuitive Surgical Peers fare on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Jan 2022
MTD [1]
YTD [1]
Total [2]
 ISRG Return -26% -26% 275%
 S&P 500 Return -9% -9% 94%
 Trefis MS Portfolio Return -14% -14% 243%

[1] Month-to-date and year-to-date as of 1/27/2022
[2] Cumulative total returns since the end of 2016

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