The Q1 results from Intuitive Surgical (NASDAQ: ISRG) confirm a trend that Marketbeat.com contributor Kate Stalter has been tracking this year. The results prove that innovation and the post-COVID environment combine to drive healthy results for med-tech companies. Intuitive Surgical is among the group's laggards but ready to catch up, and it has double-digit gains in store. The post-release action has the stock up more than 12% and confirms a bottom that began to form last year. If the market follows through on this signal and moves to a new high, this stock could gain another 20% and set up for a try at a new all-time high.
Intuitive Surgical Has Dual-Tailwinds
Intuitive Surgical benefits from the dual tailwinds provided by COVIDs diminishing impact on procedures and organic business growth. The company’s $1.69 billion in revenue is up 14% compared to last year on system and instrument/accessory growth. The revenue beat the Marketbeat.com consensus by 620 basis points, a driving factor for the market, and the outlook is robust. Sales of DaVinci systems grew by 26%, including a COVID-related impact on business in China. That helped generate 312 new system installations bringing the YOY total to +12%. Instruments and Accessories, the company’s moneymaker, grew by 22% on the leverage of more systems compounded by higher procedure traffic.
The only bad news is that rising costs and FX impacted the margin, but it was less than expected. The company reported $1.23 in adjusted earnings, up 8.8% compared to last year, weaker than the top-line growth but still $0.03 better than the consensus estimate. The company does not give guidance, but it shows clear momentum, with revenue up sequentially for the last 4 quarters and growth accelerating for the last 2. Because the company is still installing new systems, procedure traffic is growing, and China is reopening more fully, revenue can be expected to accelerate again.
“Our core business was lifted by positive surgical trends and continued interest in robotic-assisted surgery when compared with other surgical approaches,” said Gary Guthart, Intuitive CEO. “We continue our focus on increased adoption, pursuit of expanded indications and product launches, excellence in supply and product quality, and increased productivity as we scale our business.”
The Analysts Drive Intuitive Surgical Higher
The analysts' consensus price target suggests that the stock is fairly valued at the current level, which is misleading. The Q1 results sparked 12 analysts' reports, including 12 price target increases. The range of new targets runs from $270 (below consensus) to $325, with the bulk above the $295 consensus target. The consensus is up sharply compared to last month and has ended a year of downtrending. The consensus rating is a Moderate Buy and may strengthen given the earnings news.
The 12% gain in share prices confirms the bottom, but there is still a hurdle to cross. The baseline of the bottoming pattern is near $300, and there is some resistance at this level. If the market can get above $300, it can make it up to the $340 to $360 region and possibly try for a new high. If not, this stock may remain range bound until later in the year.
