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Intuitive Surgical (ISRG) Hits All-Time High: Will It Go Higher?

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Shares of Intuitive Surgical (ISRG - Free Report) surged 9.3% last Friday, after the company announced second-quarter results. The share price touched an all-time high of $456.81 and also closed at a record high of $455.01.

ISRG ended the second quarter on a strong note, wherein both its top and bottom lines grew year over year and beat their respective estimates.  

Revenues were primarily driven by continued growth procedure volume, along with higher price realization for procedures as well as system placements. The company also registered higher average system utilization year over year, leading to higher sales. Strong growth in installations of ISRG’s surgical systems in the international markets has also added to the growth.

The robust earnings performance was driven by improved gross and operating margins. The gross margin benefited from lower cost of products for ISRG’s latest platforms, Ion and SP, coupled with lower inventory reserves, cost reductions in certain purchase components, lower freight rates and leverage of fixed overhead. Operating margin improved from the ongoing benefit of planned leverage in enabling functions related to robotic surgery.

Shares of Intuitive Surgical have risen 34.9% year to date compared with the industry’s 4.3% growth. The S&P 500 Index has gained 15.8% during the said time frame.

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What Lies Ahead?

The factors that drove the second-quarter results are likely to remain in place for the rest of the year. Surgical procedure volume was hurt last year, primarily due to the lockdown in China that created backlogs. These backlogs are likely to continue to drive procedure demand in the upcoming quarters. Meanwhile, the minimally-invasive nature of robotic surgeries will continue to drive patients from conventional methods to the likes of ISRG’s da Vinci systems.

Intuitive Surgical placed 341 da Vinci systems in the second quarter, driving its installed base higher by 14%. The installed base for da Vinci systems is likely to continue to grow in the upcoming quarters, primarily on the back of strong international demand. These placements generate significant revenues for the company. Moreover, the higher installed base should, in turn, drive procedure volume further. The company continues to drive average system utilization higher, thereby driving sales.

Meanwhile, the launch of ISRG’s latest robotic system, da Vinci 5, reflected strong demand for the company’s new system. The company placed 70 da Vinci 5 units during the second quarter compared with eight during the first quarter, following its launch in March. Although the company has stated that the launch of da Vinci 5 will continue to be a measured rollout till mid-2025, its installations are likely to reflect sequential growth, according to some analysts. The higher proportion of da Vinci 5 installations may also drive accessories sales due to upgrades available with the new system.

Apart from the da Vinci platform, Intuitive Surgical’s Ion modulation system represents another growth story. The platform has demonstrated robust numbers since its launch in 2019. The company placed 74 Ion systems compared with 59 last year and 70 last quarter. The procedures conducted by the Ion system grew 82% during the second quarter, in sync with its strong trend over the past few quarters. The supply-chain issue restricting Ion system sales also improved during the period, implying potentially higher placements and procedures in the upcoming few quarters.

However, softening in bariatric procedures, along with increasing headwinds in Asia from prolonged physician strikes in Korea and in China from delayed tenders and emerging domestic robotic systems, is likely to have partially offset growth in other procedures and regions.

During the second quarter, Intuitive Surgical tightened its fiscal outlook, raising the lower-end of procedure-volume growth projection for 2024. The company now expects procedures to grow 15.5-17% compared with 14-17% (guided earlier).

Should You Buy?

Considering the aforementioned factors, Intuitive Surgical’s top and bottom-lines are likely to improve in the upcoming quarters, making it an attractive investment option. Meanwhile, the company carries a Zacks Rank #1 (Strong Buy), coupled with a Momentum score of A. This implies a strong surge in its share price in the upcoming days.

The strength in the stock is also reflected in its historical trend. The company’s stock price has made several new highs since the beginning of 2024.

Based on a favorable Zacks Rank, historical performance, strong second-quarter performance and fundamental factors, investors may add ISRG to their portfolio.

Other Stocks to Consider

Here are some other medical stocks worth considering, as these have the right combination of elements to post an earnings beat this reporting cycle.

McKesson (MCK - Free Report) has an Earnings ESP of +0.19% and a Zacks Rank of 3 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company’s shares have surged 25.3% year to date. MCK’s earnings missed estimates in the last reported quarter. McKesson has a four-quarter average earnings surprise of 8.38%.

Inari Medical (NARI - Free Report) has an Earnings ESP of +45.95% and a Zacks Rank of 3 at present.

Its shares have lost 15.4% year to date. NARI’s earnings missed estimates in the last reported quarter. Inari Medical has a trailing four-quarter average earnings surprise of 130.74%.

AxoGen (AXGN - Free Report) has an Earnings ESP of +25.00% and a Zacks Rank of 3 at present.

The stock has risen 33.5% year to date. AXGN’s earnings beat estimates in the last reported quarter. AxoGen has a four-quarter average earnings surprise of 66.46%.

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