On Friday, Evercore ISI adjusted its outlook on Intuitive Surgical (NASDAQ:ISRG) shares, reducing the price target to $410 from the previous $425. The firm has retained an 'In Line' rating for the stock.
This revision follows Intuitive Surgical's reported revenue growth of 14.5%, which surpassed Street estimates by approximately 190 basis points. The growth was attributed to a 16% increase in consumable revenue, approximately 14% in system revenue, and around 10% in service revenue.
The company experienced a notable 17% growth in procedures, exceeding Street expectations by roughly 150 basis points. This consistent quarter-over-quarter growth rate matches the compound annual growth rate (CAGR) since 2019.
In the U.S., procedure growth was 14%, with Ion procedures and general surgery driving the numbers, despite a mid-single-digit decline in bariatric procedures. International growth was strong at 22%, led by non-urology procedures. System placements totaled 341, outpacing the Street's estimate of 328, bolstered by 70 new da Vinci 5 (dV5) system placements.
Intuitive Surgical's gross margins beat Street expectations by 300 basis points, primarily due to a favorable mix and cost-saving measures. Only 11 of the 70 dV5 systems were sold outright, with the remainder being accounted for through usage or lease agreements.
Operating margins, excluding $174 million in stock compensation expense, were 37.5%, which was 450 basis points above Street estimates. These figures, coupled with a slight increase in interest income, resulted in earnings per share (EPS) of $1.78, which represents a 25% year-over-year growth and is 15% higher than Street forecasts.
Management has revised its full-year guidance, increasing the expected range of procedure growth, raising gross margin projections, and lowering anticipated operating expenses, despite it being a launch year for a new system. These changes prompted Evercore ISI to increase its EPS estimate by approximately 5% to $6.73.
However, the firm also noted potential challenges, including constrained dV5 system placements until the first half of 2025 and a stabilized, rather than accelerating, utilization environment.
Additionally, potential short-term softness in the tech sector could impact Intuitive Surgical, given its correlation with the tech industry. The revised price target of $410 is based on an estimated 65 times average forward FY24/25 P/E and a free cash flow yield of about 1.4%.
In other recent news, Intuitive Surgical has seen a flurry of activity from various analyst firms, all adjusting their price targets in response to the company's promising Q2 2024 financial results.
BTIG raised its price target to $469, following the company's reported revenues of $2.009 billion, a 14.5% increase year-over-year, and an adjusted earnings per share (EPS) of $1.78. These figures surpassed both BTIG's and consensus estimates.
Truist Securities raised its price target to $515, citing expected revenue and EPS growth driven by the company's consistent procedure growth and anticipated new product cycle.
Baird increased its price target to $487, highlighting the potential impact of the da Vinci 5 system on the company's future earnings. Mizuho also upped its price target to $440, reflecting positive expectations surrounding the da Vinci 5 system. Piper Sandler adjusted its price target to $490, noting strong placement numbers for the da Vinci 5 surgical robot.
Additionally, the U.S. Food and Drug Administration (FDA) approved a labeling revision for Intuitive's da Vinci X and Xi surgical systems, indicating survival rates for patients undergoing robotic-assisted radical prostatectomy are comparable to those of traditional open surgery.
This decision was based on a study involving nearly 25,000 patients. These recent developments underscore Intuitive Surgical's strong position in the medical technology industry.
InvestingPro Insights
Intuitive Surgical (NASDAQ:ISRG) is currently trading at a significant earnings multiple, with a P/E ratio of 73.91 for the last twelve months as of Q1 2024, reflecting a premium valuation in the market. This high valuation is also echoed in the company's Price / Book ratio, which stands at 10.57, indicating that investors are willing to pay a higher price for each dollar of book value. Despite this, the company's strong revenue growth of 13.81% over the last twelve months showcases its ability to expand its top line effectively.
The company's solid financial footing is evident as its gross profit margin remains robust at 66.43%, and its operating income margin is impressive at 25.26%. With a market capitalization of $147.61 billion USD, Intuitive Surgical is a heavyweight in its sector, and its stock exhibits low price volatility, which may appeal to investors looking for stability in their portfolio. Additionally, the company's liquid assets exceed its short-term obligations, underlining a strong balance sheet.
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