Yahoo Finance Intuitive Surgical (ISRG) Rises 10% in a Month: What's Next?
Shares of Intuitive Surgical ISRG have risen more than 10% in the past month, outperforming the Zacks Medical - Instruments industry’s growth of 0.7% and the broader Zacks Medical sector’s return of 1.6%. The company continued to touch new 52-week highs in the last month and made an all-time high of $448.10 on Jul 1, before declining almost 1.9%.
We believe that the recent momentum will continue this month as investors remain upbeat about Intuitive Surgical’s robot-based da Vinci surgical system, which has been a key driver for the company’s performance since its launch in 1999. ISRG’s continued focus on upgrading the system has played a pivotal role in sustaining its growth. The minimally invasive nature of the system has helped its wide adoption for certain surgical procedures.
Shares of this global technology leader in robotic-assisted, minimally invasive surgery have demonstrated a strong uptrend in 2024, gaining nearly 29.3% in the first half.
Moreover, the shares are trading above the 50-day and the 200-day moving average, indicating a bullish trend.
ISRG Stock Trades Above 50-Day Average
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Intuitive Surgical expects its key top-line driver, procedure volume, to reflect growth of 14-17% in 2024. However, this reflects a decline from 22% growth in 2023. A lower growth estimate for 2024 is likely due to strong recovery for medical procedures in 2023. The demand for medical procedures started to improve in 2023 after being disrupted by the COVID-19 pandemic in 2020, leading to robust growth. The procedure growth expectation for fiscal 2024 is slightly below the pre-pandemic growth rate of 18% for full-year 2019. The Zacks Consensus Estimate for 2024 revenues reflects a year-over-year improvement of 12.5%.
The procedure growth rate estimate is likely to improve in the upcoming quarters as Intuitive Surgical gets a clearer picture after reporting the subsequent quarters in 2024. The company has raised its guidance for full-year 2024 procedure growth to 14-17% during the first-quarter earnings call compared with 13-16% announced earlier (with the fourth-quarter 2023 results).
Although ISRG expects its gross margin in 2024 to be 67-68%, in-line or lower than 68% in 2023, the decline will be primarily driven by the launch of its new products and capital investments to support the business growth, primarily implying that margins may improve in the upcoming years.
The Zacks Consensus Estimate for 2024 earnings is currently pegged at $6.26 per share, indicating a 9.6% year-over-year improvement. The estimate has remained stable over the past 30 days.
Image Source: Zacks Investment Research
Expanding Portfolio Aids Long-term Prospects
ISRG’s expanding portfolio aids long-term prospects. In March, it received FDA approval for its da Vinci 5 fifth-generation multiport robotic system. The newest member of the da Vinci family is da Vinci 5, which also comprises the single-port da Vinci SP and the multiport da Vinci X and Xi systems. This was followed by FDA 510(k) clearance of a labeling revision for its da Vinci X and Xi specific to radical prostatectomy in June. These clearances are likely to boost Intuitive Surgical’s business and generate additional revenues with new installations and wider procedure support. The installed base of the da Vinci system grew approximately 14% year over year during the first quarter of 2024.
Apart from da Vinci systems, Intuitive Surgical launched the Ion endoluminal system in 2019, extending its commercial offering beyond surgery into diagnostic endoluminal procedures. The system received approval in Europe and South Korea in 2023. It received approval in China during the first quarter of 2024.
Per the first-quarter 2024 earnings call, the installed base of Ion modulation system grew approximately 61% year over year to 604 units. The company completed approximately 19,500 Ion procedures in the first quarter, reflecting year-over-year growth of 90%.
Challenging Market Scenario Persists
Although ISRG has a strong product portfolio with significant opportunity, the company faces huge competition from larger and well-established companies, such as Johnson & Johnson JNJ and Medtronic MDT that are also focused on developing robotically controlled products. These companies have stronger balance sheets and commercial networks to support the development and launch of new products, which can significantly impact ISRG’s prospects.
Meanwhile, a constrained supply chain amid continuing geopolitical tensions may lead to choppy da Vinci 5 system placements in 2024. A challenging catheter supply may adversely impact Ion modulation system sales. Moreover, weakness in bariatric procedures, along with challenges in China from increasing provincial robotic competition and delayed tenders affecting capital placements, is likely to have a nearly three percentage point headwind for revenues in 2024.
Wrapping Up
Intuitive Surgical is likely to continue with its strong performance in 2024 on the back of continued growth in the company’s da Vinci procedure volume, coupled with strong Ion procedure growth. ISRG is also increasing the pricing of procedures that should aid in 2024 sales growth. Improving procedure volume, along with better system placements and services across all markets, should drive top-line growth this year.
The launch of da Vinci SP in Europe and da Vinci 5 in the U.S. market should drive system placements higher. However, ongoing supply-chain constraints, although easing, are likely to hurt the availability of devices. Weakness in bariatric procedures and challenges in China are likely to offset growth in the upcoming quarters.
As such, we believe that investors should not rush into buying the stock now. While current shareholders should hold their position, new investors should wait for the stock to retract some of its recent gains, providing a better entry point.
ISRG YTD Performance
Image Source: Zacks Investment Research
Intuitive Surgical currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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