Intuitive Surgical Stock Outperforms Market: Highs on the Horizon

Key Points

• Intuitive Surgical had a robust quarter, showing momentum and outperformance the analysts applaud. 
• Analysts are raising their targets for the stock price and leading it to new all-time highs. 
• Robotic, AI-assisted surgery gains traction; this company is forecast to grow at a near-20% CAGR for the next four years.

Intuitive Surgical’s NASDAQ: ISRG stock bucked the broad-market selloff because of its operational quality, performance, outlook, and balance sheet, which has absolutely nothing wrong with it. The B/S highlights for Q2 include a 490 basis point increase in cash and securities and the net cash position. The net cash position is truly amazing because this company has zero debt: net cash is regarding the company’s total liability. Its $7.68 billion in cash and investments is more than 4.25x of total liabilities, leaving it in the strongest position it could be in to sustain its high double-digit growth pace. 

Intuitive Surgical Leads MedTech: Analysts Raise Targets

Intuitive Surgical is thriving and leading the MedTech Industry. Its 14% top-line increase leads peers like Johnson & Johnson NYSE: JNJ and Abbott Laboratories NYSE: ABT, which also produced significant growth. More importantly, Intuitive’s $2.01 billion in revenue outpaced the consensus reported by MarketBeat and led analysts to raise their estimates and stock price targets. 

Revenue growth outpaced the consensus by 100 basis points on strength in system placement procedure volume and Instruments & Accessories growth. Procedures count grew by 17% on a 14% increase in installed machines, with strength seen in the da Vinci 5 offering. Sales of da Vinci 5 accounted for 20.5% of machines installed in the quarter. Sales of instruments and accessories, the company's recurring revenue stream, accounted for 62% of sales and is up 60 bps sequentially.

There are some concerns that the procedure count is driven primarily by system installation, but headwinds include sluggishness in China and bariatric surgery. The analysts' chatter suggests that headwinds are expected to diminish and be offset by general surgical procedure volume growth and broadening acceptance of AI-powered surgical assistance. The long-term outlook includes a 17% to 18% top and bottom line forecast through 2028, and it may be cautious. 

The margin news is among the more impressive details. The company widened its margin on a GAAP and adjusted basis to drive robust increases in earnings. The GAAP net income rose by 25% and adjusted by 26% to leave adjusted earnings at $1.78, up 25% compared to last year and a quarter better than expected. The takeaway is that Intuitive had a cash-flow positive quarter despite CAPEX and increased shareholder equity by 10%. Intuitive does not give guidance but shows clear momentum and robust cash flows that sustain the strong balance sheet, setting the company up to potentially initiate dividend payments or buy back significant amounts of stock. 

Analysts Lead Intuitive Surgical Stock to New Highs

The consensus price target reported by MarketBeat.com lags the ISRG stock price, but there is a high level of conviction in the Moderate Buy rating, and the price target is rising, providing support for the market. MarketBeat.com tracks 19 analysts with current ratings, and 10 of them revised their price targets following the release, leading to the range's high end. Their activity increased the consensus by nearly 10% compared to last month and included a new high price target of $525, a 15% upside to current price action. 

ISRG stock surged on the news and analysts' upgrades, rising more than 10% to set a new all-time high. The move shows strong support at the 30-day moving average and a trend-following signal compounded by bullish signals in the indicators. The MACD and stochastic align with a rising market, suggesting new highs are possible. 

Insiders have sold into the rally this year and are likely to continue. However, their activity is offset by robust institutional buying. The institutions own about 85% of the stock and have bought on balance this year, providing a strong tailwind for the market.