What To Expect From Intuitive Surgical’s Q3?

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ISRG: Intuitive Surgical logo
ISRG
Intuitive Surgical

Intuitive Surgical (NASDAQ: ISRG) is scheduled to report its Q3 2022 results on Tuesday, October 18. 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 Q3 2022 revenues to be around $1.6 billion, slightly above the $1.5 billion consensus estimate. 
  • The overall procedure volume likely picked up pace in Q3, aiding the company’s top-line growth.
  • The company expects its full-year 2022 procedure growth to be between 14% and 16.5%.
  • Looking at Q2 2022, the company saw its sales grow 4% (y-o-y) to $1.5 billion. This can be attributed to a higher demand for consumables and new system placements. The overall procedure volume grew 14% during the quarter.
  • Our dashboard on Intuitive Surgical Revenues has more details on the company’s segments.
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(2) EPS likely to be slightly above the consensus estimates

  • Intuitive Surgical’s Q3 2022 adjusted earnings per share (EPS) is expected to be $1.16 per Trefis analysis, slightly above the $1.12 consensus estimate.
  • The company’s adjusted net income of $415 million in Q2 2022 reflected a 13% fall from its $475 million figure in the prior-year quarter, as the 4% 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 component pricing.
  • 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 lower at $4.70 compared to $4.96 in 2021.

(3) ISRG stock is undervalued

  • We estimate Intuitive Surgical’s Valuation to be around $240 per share, which is a significant 29% above the current market price of $186.
  • At its current levels, ISRG stock is trading at under 40x 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.
  • However, the stock has corrected meaningfully this year owing to the lockdowns in China impacting its system placements and hospitals reducing their capital expenditures.
  • 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 looks undervalued, it is helpful to see how Intuitive Surgical’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at 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 48% 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.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Oct 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 ISRG Return -1% -48% 164%
 S&P 500 Return 0% -25% 60%
 Trefis Multi-Strategy Portfolio 0% -26% 192%

[1] Month-to-date and year-to-date as of 10/12/2022
[2] Cumulative total returns since the end of 2016

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