subject: Earnings Scorecard: Intuitive Surgical [print this page] Intuitive Surgical (ISRG) announced favorable second-quarter 2010 results on July 21, 2010. Earnings per share (excluding one-time items) came in at $2.19, beating the Zacks Consensus Estimate of $2.05 and the year-ago level of $1.62.
Second Quarter Review
Total revenue at Intuitive Surgical jumped 42% year over year to $351 million. Intuitive Surgical generated total recurring revenue of $183 million, up 35% year over year. During the reported quarter, Vinci Hysterectomy became Intuitive Surgical's largest single procedure while Prostatectomy stagnated in the US.
Intuitive Surgical's systems base continued to grow steadily with additions now mostly coming from the newer da Vinci Si system. The company had an installed base of 1,579 at the end of the second quarter, up 89 units sequentially.
Intuitive Surgical had a robust balance sheet at the end of the quarter with cash and cash equivalents of $1.59 billion. It continues to be a zero debt company.
We have discussed the quarterly results at length here: Intutive Beats Estimates
Agreement Estimate Revisions
Estimates for 2010 demonstrate an upward trend since the announcement of the second-quarter results, reflecting a clear directional agreement. Out of 12 analysts covering the stock, 10 increased their estimates for 2010 over the last 7 days with only 1 negative revision. The trend continues in 2011 with 9 (out of 11 analysts) making bullish revisions and just 1 moving in the opposite direction.
Intuitive Surgical has a well established track record of surpassing estimates. The upswing in estimate revisions is a reflection of improved sentiment toward the company after it beat its earnings forecast for the second quarter and increased its growth target for sales in 2010.
Magnitude Consensus Estimate Trend
Positive revisions coupled with a directional agreement, has led to an increase in annual forecasts for Intuitive Surgical. There has been an increase in estimates of 13 cents for 2010, and a more pronounced raise of 26 cents for 2011, over the last 7 days. The current Zacks Consensus Estimate for 2010 is $8.65, reflecting a 38.8% year-over-year increase.
Intuitive Remains "Outperform"
We are bullish about the prospects of Intuitive Surgical. Its volume of procedures continues to grow rapidly, consequently forcing hospitals to add new systems. Thus, procedure growth is the single most important indicator of its future performance. In addition, the recent investments in its sales structure should drive revenues.
We believe that Intuitive Surgical will gain from the upgrade of older systems to more sophisticated da Vinci Si system. This replacement cycle is expected to occur even without a significant improvement in hospital capital spending. Further, the arms race among hospitals, in the field of robotic surgery, is expected to become more intense.
A premium valuation is appropriate for Intuitive Surgical due to its leading position in robotic surgery, strong barriers to entry, steady cash flow, sizeable cash balance and zero debt. However, we think that capital spending by hospitals, in both US and Europe, will remain soft during the rest of 2010 due to weak economic conditions. We reiterate our Outperform rating on Intuitive Surgical, which is supported by a Zacks #2 Rank (Buy).
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These "Earnings Estimate Scorecard" articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/.
