Should You Pick Intuitive Surgical Stock At $375 After An Upbeat Q4?

ISRG: Intuitive Surgical logo
Intuitive Surgical

Intuitive Surgical (NASDAQ: ISRG) reported its Q4 results last month, with revenues and earnings beating the street estimates. The company reported revenue of $1.93 billion, up 17% y-o-y and above the $1.89 billion consensus estimate. Its adjusted earnings of $1.60 per share were up 30% y-o-y and above the street estimate of $1.48 per share. In this note, we discuss Intuitive Surgical’s stock performance, key takeaways from its recent results, and valuation.

ISRG stock has shown strong gains of 40% from levels of $275 in early January 2021 to around $380 now, vs. an increase of about 30% for the S&P 500 over this roughly 3-year period. However, the increase in ISRG stock has been far from consistent. Returns for the stock were 32% in 2021, -26% in 2022, and 27% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that ISRG underperformed the S&P in 2022.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks, for heavyweights in the healthcare sector, including LLY, UNH, and JNJ, and even for the mega-cap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

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Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could ISRG face a similar situation as it did in 2022 and underperform the S&P over the next 12 months – or will it see a strong jump? From a valuation perspective, ISRG stock looks like it is appropriately priced. We estimate Intuitive Surgical’s Valuation to be $355 per share, roughly 6% below its current levels of $378. Our forecast is based on a 56x P/E multiple for ISRG and expected earnings of $6.29 on a per-share and adjusted basis for the full year 2024.

Intuitive Surgical’s revenue of $1.9 billion reflects a 17% y-o-y growth driven by a 21% rise in worldwide da Vinci procedure volume. The company placed 415 da Vinci systems during the quarter, reflecting a 12% y-o-y increase. Intuitive Surgical has filed for regulatory approval of its next-generation platform – the da Vinci 5, which will likely bolster sales growth in 2025 and beyond. Its adjusted net margin remained around the 30% mark. The company’s bottom line stood at $1.60 on a per share and adjusted basis, reflecting a 30% increase over the prior-year quarter.

ISRG stock is trading at 19x sales, compared to the last three-year average of 21x. We believe investors will likely be better off waiting for a dip to enter ISRG for robust gains in the long run. Furthermore, the increased adoption of GLP-1 and a potential recession remain key risk factors in the near term. 

Returns Feb 2024
MTD [1]
Since start
of 2023 [1]
Total [2]
 ISRG Return 0% 43% 437%
 S&P 500 Return 0% 26% 116%
 Trefis Reinforced Value Portfolio -1% 37% 603%

[1] Returns as of 2/1/2024
[2] Cumulative total returns since the end of 2016

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