Intuitive Surgical (NASDAQ: ISRG), a fast-growing robotic surgical platform company, is scheduled to report its Q2 2022 results on Thursday, July 21. We expect Intuitive Surgical to report revenue and earnings above the street estimates, driven by a rise in total procedures volume. However, inflationary headwinds may weigh on the company’s net margins. Not only do we believe the company will navigate well during the quarter, but we also find the stock to be undervalued, as discussed below. Our interactive dashboard analysis on Intuitive Surgical Earnings Preview has additional details.
(1) Revenues expected to be marginally above the consensus estimates
- Trefis estimates Intuitive Surgical’s Q2 2022 revenues to be around $1.62 billion, slightly above the $1.56 billion consensus estimate.
- After a surge in Covid-19 cases due to the spread of Omicron in Q1, the overall procedure volume likely picked up pace in Q2, aiding the company’s top-line growth.
- Looking at Q1 2022, the company saw its sales grow 15% y-o-y to $1.5 billion. This growth was led by similar growth in all three segments – Instruments & Accessories, Systems, and Services. Our dashboard on Intuitive Surgical Revenues has more details on the company’s segments.
- Intuitive Surgical saw a 19% rise in worldwide procedures volume, and its installed base stood at 6,920 systems, reflecting an increase of 13% compared with 6,142 in the prior-year quarter. This trend likely continued in Q2 as well.
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(2) EPS likely to be comfortably above the consensus estimates
- Intuitive Surgical’s Q2 2022 adjusted earnings per share (EPS) is expected to be $1.26 per Trefis analysis, comfortably above the $1.19 consensus estimate.
- The company’s adjusted net income of $413 million in Q1 2022 reflected a 3% fall from its $427 million figure in the prior-year quarter, as the 15% sales growth was more than offset by over 500 bps drop in net margins. This can primarily be attributed to higher logistics costs and increased training, travel, and marketing spending.
- With the rising inflation, the costs may remain high for the company in the near term.
- For the full-year 2022, we expect the adjusted EPS to be higher at $5.03 compared to $4.96 in 2021.
(3) ISRG stock is undervalued
- We estimate Intuitive Surgical’s Valuation to be around $300 per share, which is a significant 49% above the current market price of $202
- At its current levels, ISRG stock is trading at under 38x forward adjusted earnings, compared to the last three-year average of over 47x, implying the stock is attractive from a valuation point of view.
- Investors have assigned a high trading multiple for ISRG stock, given the substantial revenue and earnings growth over the past 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
Furthermore, the Covid-19 crisis 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 Abbott vs. Amerco.
With inflation rising and the Fed raising interest rates, among other factors, ISRG stock has plunged 43% this year. Can it drop more? See how low Intuitive Surgical stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
|S&P 500 Return||1%||-20%||71%|
|Trefis Multi-Strategy Portfolio||2%||-21%||210%|
 Month-to-date and year-to-date as of 7/14/2022
 Cumulative total returns since the end of 2016