Intuitive Surgical: A Strong Buy - Analyst Blog
January 02 2013 - 6:30AM
Zacks
Rising earnings estimates on the
back of strong third quarter results - including a 28.2% earnings
surprise - helped Intuitive Surgical (ISRG)
achieve a Zacks #1 Rank (Strong Buy) on January 1, 2013. Moreover,
this pioneer of robotic surgery has delivered a positive earnings
surprise in each of the last five quarters with an average beat of
13.7%.
The Rank
Driver
We expect a number of procedures
that are currently completed either in an open surgical manner or
with laparoscopy to be eventually replaced by da Vinci surgery, as
robotic surgery becomes the standard of care in many instances. The
company enjoys a virtual monopoly in robotic surgery with little
competition.
Intuitive’s recurring revenue
stream continues to be robust and provides a shield against
cyclicality of revenues arising from the sale of discretionary
capital equipment to hospitals. Recurring revenues continue to grow
as a proportion of total sales. It increased 24% year over year in
the third quarter and constituted 57% of revenues.
However, we believe that until the
global economy fully recovers, the stock may come under periodic
pressure as investors ponder whether lingering macro economic
uncertainty weakens hospitals’ commitment towards investment in
high-cost robotic systems. In the interim, the installed base of
Intuitive continues to grow as hospitals are compelled to upgrade
their systems.
Overall, a reasonable valuation is
appropriate given positive factors such as Intuitive’s leading
position in robotic surgery, a growing list of emerging procedures,
barriers to entry, sizeable cash and no debt.
The company tweaked its guidance
for revenues and operating income for 2012 along with its third
quarter results. For 2012, revenues are forecast to grow in the
range of 21.5% to 23% compared with the earlier guidance of 20% to
23%. Operating income is expected at about 40% compared to
approximately 39% to 40% of net sales earlier. The company lowered
its procedure growth at 24% (earlier in the band of 25% and 27%)
for 2012.
Earnings Estimate
Revisions
The Zacks Consensus Estimate for
2012 increased 0.3% to $14.85 per share based on 6 out of 8 upward
estimate revisions over the last 60 days. The current estimate
implies year-over-year growth of 20.6%.
Valuation
Intuitive currently trades at a
forward P/E of 33.4x, a 77.8% premium to the peer group average of
18.8x. Also, on a price-to-book basis, the shares are trading at
6.0x, a 42.9% premium to the peer group average of 4.2x. Given the
company’s strong fundamentals, the premium valuation is
justified.
Intuitive has a trailing 12-month
ROE of 18% compared with the peer group average of 12.3%.
About the
Company
Headquartered in Sunnyvale,
California, Intuitive specializes in minimally invasive robotic
surgery. Its systems find application in gynecology and
prostatectomy procedures besides a host of emerging procedures. The
company has a market capitalization of about $19.5 billion.
Other Zacks #1 Rank (Strong Buy)
stocks include Myriad Genetics Inc. (MYGN) and
Cantel Medical Corp. (CMN).
CANTEL MED CORP (CMN): Free Stock Analysis Report
INTUITIVE SURG (ISRG): Free Stock Analysis Report
MYRIAD GENETICS (MYGN): Free Stock Analysis Report
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