Intuitive Surgical Confirms Bullish Flag: 25% to 30% Upside Ahead

Key Points

• Intuitive Surgical will continue to trend higher because of market-leading growth and cash flow.
• The company is a cash-flow machine able to sustain a fortress balance sheet and grow without debt, building value for investors.
• Analysts are raising their price target to align with technical targets, suggesting a 25% to 30% upside for the stock price.

Technical traders and technically-minded investors will rejoice after a look at the Intuitive Surgical NASDAQ: ISRG price chart. The market for this leading med-tech company has produced a strong rally since summer, rising $115 from the low to the high in September, or about 30%, and now signaling that the trend will continue for this healthcare company. 

The signal is a solid bullish flag pattern that suggests the move is only half over. The projections from the critical point, the point of the flag, put the market at $595 to $624, which is good for another 25% to 30% upside. And the best news is that this run is not merely technical. There are ample reasons for investors to love this stock, including its market position, industry-leading growth, cash flow, and value-building capability. 

Intuitive Surgical Accelerates Business in Q3 2024

There is nothing in Intuitive Surgicals Q3 release that investors won’t like. The company reported $2.04 billion in net revenue for a gain of 17.2% over last year, outpacing the consensus forecasts as revenue growth accelerated sequentially and YoY. Strength is due to results in both segments, with systems and services producing solid growth. Systems include 379 new da Vinci placements, a 15% increase in the installed base, and significant demand for the da Vinci 5 next-gen robotic surgical system. It accounted for 30% of the systems placed. Services grew on an 18% increase in procedure volume and Instruments & Accessories demand. 

The margin news is equally good. The company widened its margins at the gross and operating levels to deliver leverage bottom-line growth. The GAAP net income is up 35%, leaving the GAAP EPS at $1.56 and adjusted at $1.84. The adjusted earnings are up by 26% compared to last year and outpaced the consensus by $0.20 or 1200 basis points, strengthening an already solid financial position. The guidance issued during the conference is also good, with revenue targets raised to the high end and expense growth lowered to the low, setting up another quarter for significant cash flow and value growth. 

Intuitive Surgical: Banking on Healthcare

Intuitive Surgical’s cash flow and operational quality are unmatched. The company produces robust earnings and cash flow, with the Q3 adjusted income of $669 million, 32% of revenue. The cash flow and free cash flow allow for reinvestment, R&D, and CAPEX while sustaining and improving the fortress balance sheet. 

The company doesn’t pay dividends or buy back significant amounts of stock but is building a robust cash position, has no debt and incredibly low liability, and is creating shareholder value. The highlights from Q3 include an 8.25% build in cash, a 15% increase in total assets, 0.25x total leverage relative to cash, 0.12x relative to equity, and a 17% increase in equity. 

Analysts Drive ISRG Stock to New Highs

The analysts' response to the news was favorable to the market. The fifteen revisions released immediately after the report were positive, reaffirming the Moderate Buy/Buy consensus and raising price targets. The range of new targets runs from $475 to $604, a slight decline to a 17% upside at the high end, with most targets in the $550 to $604 range. 

The risk for investors is the valuation. Trading at all-time highs, the stock is nearly 70x its current-year earnings, which is a high valuation pricing in substantial growth. However, with growth accelerating in 2024 and expected to be sustained at high levels in 2025 and 2026, the market can continue to run higher until the outlook changes. That may not be for several more years because da Vinci is gaining traction globally with new approvals announced regularly.