A host of analysts now eye the $1,000 mark for shares of Intuitive Surgical after the maker of surgical robots delivered second quarter financial results that surged past expectations. So why is the stock price falling?
Intuitive Surgical (ISRG) The maker of surgical robots is in the spotlight today. After Intuitive posted second quarter financial results late Thursday that comfortably beat estimates and lifted its estimate for procedure growth, analysts raced to lift price targets on the stock. In fact, a growing number of sell-side observers see the share price ascending to $1,000 or higher — which is rarefied air.
But if so many analysts are so enthusiastic about the stock, why is Intuitive Surgical falling in recent market action? At just over $946, Intuitive has fallen almost 2.6%.
The answer: pricing. The company said it expects selling prices for its machines to moderate as it sells more systems to “cost-sensitive markets” and offers discounts for multiple-unit deals.
That did not deter Matthew Taylor. The Barclays analyst lifted his price target by $130 to $1,000 a share
While we acknowledge these are real factors, we note ISRG has a history of being conservative with guidance and procedure comps ease slightly in the 2H. The business continues to have a lot of momentum with mature procedures growing more than expected and hernia and colon procedures taking off in general surgery. Further, there seems to be no evidence of weaker capital trends that some investors feared entering the year. In the near term, we see no reason for business momentum to slow and note a compelling pipeline that includes Sp (2H 510K submission for urology), flexible robotics, and imaging. Further, ISRG could benefit from new quotas and reimbursement in Japan and China in the future. In addition, we note gross margin performance and business outperformance continues to drive EPS numbers higher, even as ISRG is taking the opportunity to spend more on OpEx. Basically, things are going very well and a lot of this is reflected in the stock. Our only concerns are valuation, which has reached 5-year highs, and the potential for competition down the road, first from MDT in 2018. At this stage, we think the positives outweigh the negatives and are raising our numbers and PT. We are raising our PT to $1,000 based on ~22x our 2018 EBITDA estimate of $1.6B, ~36x our new 2018E EPS; our prior target of $870 was based on 31.7x our prior 2018 EPS of $27.41.
According to Reuters, ISRG earned $5.95 per share, which beat the $5.79 per share consensus estimate compiled by Thomson Reuters I/B/E/S. Revenue rose 13% to$756 million.
The company said it shipped 166 da Vinci Surgical Systems in the second quarter, compared with 130 in the second quarter of 2016. Te number of procedures performed using the machines rose 16% in the quarter, and the company raised its estimate for full-year procedure growth to 14-15% from 12-14%.