Intuitive Surgical Stock is Both a Legacy and Next-Gen Play

Key Points

• Intuitive Surgical is the leader in robotic-assisted surgery systems
• The futuristic da Vinci Surgical System is over two decades old and performed over 10 million surgeries year-to-date as adoption spreads worldwide
• The aging population continues to grow as does robotic assisted surgeries and procedures rose 20% and 14% sequentially in Q3  

It’s hard to believe that the da Vinci Surgical System developed by Intuitive Surgical NASDAQ: ISRG is turning 22 years old since its U.S. Food and Drug Administration (FDA) approval in 2000. A two-decade-old piece of robotic technology would be deemed a legacy product in the tech world, but the da Vinci installs are still robust rising 13% to 7,364 systems performing over 10 million procedures throughout 69 countries in the past year. The stock fell to a pandemic low of $120.17 as hospitals put surgery procedures on the back burner to free up operating and emergency rooms for COVID-19 patients. This impacted other medical device makers as well like Boston Scientific NYSE: BSX, Abbott Labs NYSE: ABT, Stryker NYSE: SYK, Becton Dickinson NYSE: BDX, and Medtronic NYSE: MDT. The spread of COVID vaccinations and boosters have enabled economies to re-open and hospitals to resume surgeries again, driving shares of Intuitive Surgical towards a double top just under $370 by December 2021. While healthcare is a defensive sector during bear markets, medical devices have still been hit by the overall market declines.

Encroaching Headwinds

Since the beginning of 2022 shares fell to a post-pandemic low of $180.07 as the bear market ravaged stocks. The Omicron resurgence in Q1 was particularly harmful to Intuitive as hospitals temporarily resumed surgery restrictions. Further pain was driven by the U.S. Federal Reserve pressing on the gas pedal hiking interest rates to mitigate inflation. Investors feared that since each da Vinci system costs upwards of $2 million, sales would decline due to higher financing costs. Additional headwinds included inflationary pressures, supply chain constraints, weakening economies, and China’s zero-COVID lockdowns. All these concerns led to the disappointing Q2 2022 earnings results for the prior quarter.    

Intuitive Surprises to the Upside

On October 18, 2022, Intuitive Surgical released its fiscal third-quarter 2022 results for September 2022. The Company reported an earnings-per-share (EPS) profit of $1.19 excluding non-recurring items versus consensus analyst estimates for a profit of $1.12, beating estimates by $0.07. Revenues grew by 11% year-over-year (YoY) to $1.56 billion beating analyst estimates of $1.52 billion. The Company placed 305 da Vinci systems, which was (-9%) less than the year-ago period, but the total install base rose by 13% YoY. In September 2022, Japan’s Ministry of Health cleared the da Vinci SP Surgical System for use in specified surgeries. These include general, thoracic, urologic, gynecological, and trans-oral head and neck surgeries.

The CEO’s Take

Intuitive Surgical CEO Gary Guthart commented, “Intuitive’s core business strengthened this quarter despite a challenging macroeconomic environment and some lingering pandemic impacts. Our da Vinci installed base grew to meet procedure demand, and we also see a continued increase in system utilization, which is healthy for our customers and the business.” He stated that surgical procedures grew 20% in Q3 as its business fundamentals grew stronger despite the flurry of headwinds. The supply chain is starting to improve after the pandemic peaks. Its surgical procedures are climbing 20% YoY led by general surgery comprised on bariatric, cholecystectomy, hernia repair, and foregut procedures in the U.S. Per system utilization rose 7% versus the three-year CAGR of 5%.

The Weekly Chart Reverses Higher

The weekly downtrend on ISRG stock was led by the falling weekly exponential 50-period moving average (EMA) which has now turned up as support rises at $216.99. The weekly 50-period MA continues to drop to $255.79 as a falling resistance price level. It’s impressive Q3 2022 earnings triggered a sharp bounce that formed both a weekly MSL buy trigger on the $193.63 breakout and a weekly downtrend channel resistance breakout at $206.77. Shares continued to rally through the $223.41 resistance and retest the $244.47 for a potential double top. The next upside resistance sits at the $254.20  and falling weekly 50-period MA. Investors looking for areas of support on pullbacks can watch $223.41 and $206.77 as former resistance levels that have turned into support levels. Volume has been very strong holding above 15 million shares traded weekly. The real key will be how well it will hold the two weekly supports when the volume returns to the normal weekly range under 10 million shares. Investors seeking a more diversified exposure to spread out risk might consider the Global X Robotics & Artificial Intelligence ETF NYSEARCA: BOTZ as ISRG is an 8% holding.