Should You Buy the Dip in Intuitive Surgical?

Shares of global medical technology pioneer Intuitive Surgical (ISRG) have been foundering of late because investors are concerned about the COVID-19 pandemic’s adverse impact on the company’s procedure volumes. But as the omicron variant threat recedes, will ISRG’s stock be able to regain its forward momentum in the near term? Let’s discuss.

Intuitive Surgical, Inc. (ISRG), in Sunnyvale, Calif., is a pioneer in minimally invasive care robotic-assisted surgery. It is a global leader in robotic-assisted surgical technology and solutions. The company is known for its da Vinci surgical system, which is designed to assist surgeons in performing minimally invasive surgeries.

For its fiscal fourth quarter, ended Dec. 31, 2021, ISRG’s revenues increased 17% year-over-year to $1.55 billion. This can be attributed to a 19% rise in worldwide da Vinci procedures. The company beat the $1.52 billion FactSet consensus revenue estimate. Its non-GAAP net income was $477 million, up 9.9% from the same period last year, and its non-GAAP EPS stood at $1.30, which is marginally higher than the $1.28 FactSet consensus EPS estimate.

However, in its quarterly earnings release, the company stated that its da Vinci procedure volumes were significantly impacted by the COVID-19 resurgences last year. Furthermore, ISRG expects such business disruptions to continue in the near term. “COVID-19 has had, and will likely continue to have, an adverse impact on the Company’s procedure volumes,” the company stated. Thus, despite the slightly-better-than-expected financials, shares of ISRG have declined in price since the company’s quarterly earnings release on January 12. The stock has since slumped 12.2% to close yesterday’s trading session at $286.51. Moreover, ISRG has declined 20.3% in price year-to-date.

Click here to checkout our Healthcare Sector Report for 2022

Here is what could shape ISRG’s performance in the near term:

Mixed Growth Prospects

Analysts expect ISRG’s revenues to rise 10.2% in its fiscal year 2022 first quarter (ending March 2022), 7.4% in the second quarter, and 10.7% in the current year. The consensus EPS estimates indicate a marginal year-over-year increase in fiscal 2022 and a 19.1% rise next year. However, the Street expects the company’s EPS to decline 8.3% in the current quarter and 5.9% in the next quarter.

Stretched Valuation

In terms of forward non-GAAP P/E, ISRG is currently trading at 57.55x, which is 180.6% higher than the 20.51x industry average. Its 1.05 forward non-GAAP PEG ratio is 103.2% higher than the 0.52x industry average.

ISRG’s forward Price/Sales and Price/Cash Flow multiples of 16.19 and 41.53, respectively, are significantly higher than 5.91 and 17.33 the industry averages. In addition, the stock’s 35.78 forward EV/EBITDA ratio is 152.2% higher than the 14.19 industry average.

POWR Ratings Reflect Uncertainty

ISRG has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

ISRG has a C grade for Sentiment and Stability. Its mixed revenue and earnings growth prospects justify the Sentiment grade. In addition, ISRG’s relatively high 1.10 beta is in sync with the Stability grade.

Among 165 stocks in the Medical – Devices & Equipment industry, ISRG is ranked #82.

Beyond what I have stated above, view ISRG ratings for Growth, Momentum, Value, and Quality here.

Bottom Line

With a $102.35 billion market cap, ISRG is a pioneer in the medical technology space, shaping the future of robotic-assisted surgery. However, the ongoing global public health crisis has stunted the growth of medical technology, as resources are used to combat the COVID-19 pandemic. While the omicron variant threat is subsiding, many medical experts believe the pandemic is far from over. Given this backdrop, we think investors should wait until the healthcare crisis ceases before investing in ISRG.

How Does Intuitive Surgical, Inc. (ISRG) Stack Up Against its Peers?

While ISRG has a C rating in our proprietary rating system, one might want to consider looking at its industry peers, Fonar Corporation (FONR), Olympus Corporation (OCPNY), and ICU Medical, Inc. (ICUI), which have an A (Strong Buy) rating.

Click here to checkout our Healthcare Sector Report for 2022

ISRG shares were trading at $291.24 per share on Wednesday morning, up $4.73 (+1.65%). Year-to-date, ISRG has declined -18.94%, versus a -4.03% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.


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