Intuitive Surgical Stock Can Trend Much Higher This Year

Key Points

• Intuitive Surgical is in an uptrend because it is the leading medtech and outpaces expectations. 
• The forecast for growth is good and supported by a global backlog in procedures. 
• Margin is widening and driving improvements in shareholder equity. 

If you wonder if Intuitive Surgical NASDAQ: ISRG stock can trend higher this year, it can. The med tech business is growing, and Intuitive Surgical is the industry leader and outperforming expectations. The takeaway from the Q1 results is the same as last quarter and last year: industry normalization is compounded by the widening use of DaVinci systems and deepening penetration of existing markets. The combination is juicing the top and bottom lines, leading the analysts to raise their targets and paving a path to new all-time high share prices. 

Intuitive Surgical Had a Good Quarter

Intuitive Surgical had a good quarter on all levels. The company reports solid double-digit growth above expectations and wider margins with no impact from COVID. The takeaway is that business is growing under its influence and without headwinds, providing a clear path to improving shareholder value. 

The company reported $1.89 billion in revenue for a nearly 12% YOY gain that outpaced consensus by 100 basis points. The strength was driven by a 16% increase in procedure volume aided by a 90% increase in ion bronchoscopy procedures and a 14% increase in the installed machine base, which provides leverage to growth. Instruments & Accessories led the revenue growth segmentally, up 18%, but a slight decline in Systems offset this. Systems fell by 2% due to the mix of end-users. Services grew by 10%.

The company experienced cost pressure along with its growth but was able to manage it and leverage bottom-line results. The cost of revenue grew only 10.2% compared to the 11.8% top-line gain and was compounded by a similar strength in operating margin. Operating costs rose only 7%, leaving the GAAP net income up 53%, GAAP earnings up 51%, and adjusted earnings up 22% and 560 bps better than the consensus forecast reported by Marketbeat. 

Intuitive Surgical doesn’t give guidance but shows momentum and is building leverage. However, during the conference call, the company executives mentioned an industry-wide backlog of procedures that should continue to drive results this year. 

Analysts Raise Price Targets for Intuitive Surgical 

Analysts liked what they saw in the ISRG Q1 earnings report and are issuing favorable revisions. The few tracked by Marketbeat.com include a single price target reduction to $440, which is well above the current action and the consensus. The range of new targets runs from a near-consensus of $375 to $436, assuming 1% to 18% of upside. The high end of the range was also set recently and adds another 600 bps of upside to the outlook. Analysts rate this stock at a consensus Moderate Buy and have been firm and steady in that view for more than twelve months. 

Insider selling may be a headwind for the market. In Q1 2024, insiders sold en masse and may continue to sell as the share price advances. However, insiders own a tiny 0.90% of the company and participate in share-based compensation, so no significant red flags are raised, given the quality of the results. The institutions would be a more substantial concern; they own about 84% of the stock, but their activity is light and has helped support the market over the last year. 

Intuitive Surgical Stock Falls to Support

Intuitive Surgical’s stock price broke out to a new high recently and is now receding to retest for support at the critical level. Assuming the market takes advantage of the opportunity, ISRG stock should begin to rebound soon. The critical support target is near the previous highs at $358, which is only a short fall away. If the market doesn’t support this stock at $358, it could fall below the critical level and move as low as $300 before rebounding.