Intuitive Surgical (ISRG) Down 7.2% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Intuitive Surgical (ISRG). Shares have lost about 7.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Intuitive Surgical due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Intuitive Surgical Q1 Earnings Miss Estimates, Grows Globally

Intuitive Surgical reported adjusted earnings of $2.61 per share in the first quarter of 2019, which fell short of the Zacks Consensus Estimate of $2.70. Adjusted earnings improved 7% year over year.

The company recorded revenues of $973.7 million which improved 14.9% from the prior-year quarter. However, the figure missed the Zacks Consensus Estimate of $980 million.

Segment Details

Instruments & Accessories

Revenues at the segment came in at $552.3 million, reflecting year-over-year increase of 20%. The improvement primarily reflects increased use of Intuitive Surgical’s advanced instruments.

Systems

In the reported quarter, System revenues increased 5.5% year over year to $247.5 million. Per management, Intuitive Surgical placed 235 da Vinci Surgical Systems in the first quarter compared with 185 systems in the year-ago quarter.

Per management, the install base of da Vinci systems expanded 13% on a year-over-year basis to approximately 5,110.

Services

Services revenues came in at $173.9 million, up 13.9% from the year-ago quarter.

International Sales Up

Outside the United States, revenues totaled $282 million, up 3% on a year-over-year basis but down 8% sequentially. The year-over-year improvement can be attributed to a greater proportion of da Vinci X systems and a higher mix of distributor arrangements.

Outside the United States, Intuitive Surgical placed 81 systems in the first quarter compared with 73 in the first quarter of 2019. Of these, 49 were in Europe, 13 in Japan, eight in Brazil and three in China.

Margins

Adjusted gross profit in the reported quarter was $692.9 million, up 14.2% year over year. As a percentage of revenues, adjusted gross margin in the quarter was 71.2%, down 40 basis points (bps).

Adjusted operating income totaled $361.5 million, up 4.4% year over year. As a percentage of revenues, adjusted operating margin in the quarter was 37.1%, down 380 bps.

2019 Outlook Impressive

Intuitive Surgical now forecasts 2019 procedure growth in the range of 15% to 17%, compared with the previous 13% to 17%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -10.26% due to these changes.

VGM Scores

At this time, Intuitive Surgical has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Intuitive Surgical has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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