Intuitive Surgical Will Reward Patience, But Is Not a Masterpiece Yet

Pandemic is Still a Headwind on Revenue for Intuitive Surgical 

A few days removed from its third-quarter earnings report, Intuitive Surgical (NASDAQ: ISRG) stock is looking for direction. ISRG stock bounced about 6% after earnings but is trending lower as the week ends. In early September, the stock was up 34% for the year. However, it has since come down 5%. And in the last 30 days, the stock is trading flat. 

This may be a case of market sentiment that the stock grew too far too fast. Like many medical equipment stocks, Intuitive Surgical declined at the beginning of the pandemic because elective surgeries which would utilize the company’s da Vinci system were postponed.  

You wouldn’t have known that by looking at the company’s earnings reports. For the past six quarters, Intuitive Surgical has posted earnings and revenue numbers that exceeded analysts’ expectations.  

And this report made it lucky number seven. Adjusted earnings per share came in at $1.19 which was more than the 92 cents per share the company posted last year. The number was also higher than the $1.17 forecast by analysts. Revenue increased by 29.6% from the prior quarter to $1.40 billion.   

However, with the surge in virus cases caused by the Delta variant of the novel coronavirus, the company is saying that the next couple of quarters may be choppy. The long-term outlook for ISRG stock remains favorable but that may not be reflected in the share price right away. 

Setting the Standard in Minimally Invasive Care 

One of the important advancements in healthcare in the last 25 years is the growth of minimally invasive procedures that can be administered with less pain to patients, lower risk of infection and lower risk of bleeding and blood transfusion. This helps to shorten hospital stays after surgery and shortens recover time.  

And all of that helps to lower healthcare costs. Intuitive Surgical has 25 years of innovation in advanced robotic systems, end-to-end learning and value-added services. The company has two products in market. The Da Vinci surgical system is the first FDA-approved robotic-assisted, minimally invasive surgical system. The system is seeded in all 50 U.S. states as well as 67 countries around the world. According to the company’s web site, the system has performed over 8.5 million procedures. 

And the company’s technology is also being used in early detection of conditions that may be hard to detect. Intuitive Surgical’s Ion endoluminal system is a robotic-assisted endoscopy platform that can find small, hard-to-reach lung nodules that can help detect lung cancer.  

The Pandemic Still Weighs on Sales 

When reviewing the financials for the quarter, Intuitive Surgical’s executive vice president and chief financial officer, Marshall Mohr remarked: “Macroeconomic conditions created by COVID could regionally impact hospital capital spending and as competition progresses in various markets, we will likely experience longer selling cycles and price pressures.” 

I believe this more than anything else explains the hesitancy for investors to buy ISRG stock. But does it make the stock a poor buy?  

The Future Looks Better Than the Present for ISRG Stock 

ISRG stock doesn’t appear to be overvalued. The price-to-earnings ratio as of this writing is 50.67 which is significantly below the medical device sector average of 65.15. This leads me to believe that the stock’s recent struggles may be due to overall market sentiment. 

Keep in mind that once hospitals have installed the company’s Da Vinci system, it will be cost-prohibitive to move to another system. That gives the company a wide moat. And with cases of the virus falling once again, it’s likely that elective procedures will start up again.  

Innovative technology for a growing sector with multiple use cases and a stock that is more affordable after a 3-for-1 stock split makes Intuitive Surgical one of the top buy-and-hold candidates you can find.