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ISRG Stock Rallies 14% in 3 Months: Is It Still Worth Buying?
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Shares of Intuitive Surgical (ISRG - Free Report) have risen 14.2% in the past three months, outperforming the Zacks Medical - Instruments industry’s growth of 3.8% and the broader Zacks Medical sector’s return of 5.4%. ISRG stock has risen 45.7% year to date, primarily due to strong demand for its robotic surgery procedures.
The uptrend is likely to continue for the rest of 2024 as improving da Vinci procedures should continue to attract investors going forward. The company’s newly launched da Vinci 5 is also showing strong uptake since its launch in March.
Moreover, ISRG expects da Vinci 5’s advanced imaging to drive market penetration and open new targeted segments. The significant growth in ISRG’s Ion procedures shows prospects for continued top-line improvement in the upcoming quarters.
The company’s continued focus on upgrading its systems has played a pivotal role in sustaining its growth. The systems’ minimally invasive nature has helped in the wide adoption of certain surgical procedures.
Meanwhile, ISRG’s shares are trading above the 50-day and the 200-day moving average, indicating a bullish trend.
ISRG Stock Trades Above 50-Day Average
Image Source: Zacks Investment Research
Intuitive Surgical expects procedure volume to grow 14-17% in 2024, continuing to drive the top line higher. The demand for medical procedures began to rebound in 2023 following the COVID-19 disruption. This resulted in strong growth.
Although procedure volume continues to improve, the company’s growth expectation for its procedures for fiscal 2024 is slightly below the pre-pandemic growth rate of 18% for full-year 2019. The Zacks Consensus Estimate for 2024 revenues reflects a year-over-year improvement of 13.7%.
The strong growth in procedure volume is likely to continue in the upcoming quarters due to the rising demand for da Vinci 5 on the back of its advanced features and shorter console time. The new device has covered only 10% of its targeted market, giving it enough space for growth.
Meanwhile, robotic procedures are leading to clinical and cost benefits for its users, driving strong adoption. ISRG’s broad product portfolio and flexible financing options are helping the company to ward off strong competition in the industry. The recovering catheter supply for ISRG’s another robotic system, Ion modulation system, bodes well.
However, the procedure growth rate may get hurt during the second half, reflecting the increased adverse impact of soft demand for bariatric procedures and increasing headwinds in Asia from prolonged physician strikes in Korea, delayed tenders and emerging domestic robotic systems in China. The company has maintained its guidance for full-year 2024.
ISRG expects gross margin in 2024 to be 68.5-69%, higher than 68% in 2023. The growth should be primarily driven by the strong uptake of da Vinci 5, improving supply challenges and realization of lower cost of materials. Moreover, the company lowered its operating expenses growth estimate to 10-13% from 11-15% (projected during the first-quarter earnings call).The improvement in costs and expenses is likely to drive earnings higher during the second half of 2024.
The Zacks Consensus Estimate for 2024 earnings is currently pegged at $6.67 per share, indicating a 16.8% year-over-year improvement. The estimate improved 6.5% over the past 60 days.
Image Source: Zacks Investment Research
Expanding Portfolio Aids Long-term Prospects
ISRG’s expanding portfolio aids long-term prospects. In March, it received FDA approval for its da Vinci 5 fifth-generation multiport robotic system. The newest member of the da Vinci family is da Vinci 5, which also comprises the single-port da Vinci SP and the multiport da Vinci X and Xi systems. This was followed by FDA 510(k) clearance of a labeling revision for its da Vinci X and Xi specific to radical prostatectomy in June.
These clearances are likely to boost Intuitive Surgical’s business and generate additional revenues with new installations and wider procedure support. The installed base of the da Vinci system grew approximately 14% year over year during the second quarter of 2024.
Apart from da Vinci systems, Intuitive Surgical launched the Ion endoluminal system in 2019, extending its commercial offering beyond surgery into diagnostic endoluminal procedures. The system received approval in Europe and South Korea in 2023. It received approval in China during the first quarter of 2024.
Per the second-quarter 2024 earnings call, the installed base of Ion modulation system grew approximately 56% year over year to 678 units. The company completed approximately 23,200 Ion procedures in the second quarter, reflecting year-over-year growth of 82%.
Challenging Market Scenario Persists
Although ISRG has a strong product portfolio with significant opportunities, the company faces huge competition from large and well-established companies, such as Johnson & Johnson (JNJ - Free Report) and Medtronic (MDT - Free Report) , which are also focused on developing robotically controlled products. These companies have strong balance sheets and commercial networks to support the development and launch of new products. This can significantly affect ISRG’s prospects.
Meanwhile, any rise in supply-chain issues amid continuing geopolitical tensions may lead to choppy da Vinci 5 system placements in 2024. Any setback to recovering catheter supply may adversely impact Ion modulation system sales. Moreover, weakness in bariatric procedures, along with challenges in China from increasing provincial robotic competition and delayed tenders affecting capital placements, is likely to have a nearly three percentage point headwind for revenues in 2024.
Wrapping Up
Intuitive Surgical’s top and bottom-line performances are likely to remain strong in 2024 on the back of continued growth in the company’s da Vinci procedure volume, coupled with strong Ion procedure growth. ISRG is also increasing the pricing of procedures that should aid in 2024 sales growth. Improving procedure volume, along with better system placements and services across all markets, should drive top-line growth this year.
The launch of da Vinci SP in Europe and da Vinci 5 in the U.S. market should drive system placements higher. However, ongoing supply-chain constraints, although easing, are likely to hurt the availability of devices. Weakness in bariatric procedures and challenges in China are likely to offset growth in the upcoming quarters.
Although ISRG carries a favorable Zacks Rank at present, its style scores don’t look quite promising. The company has a Value score of F and Momentum and Growth scores of D and C, respectively. As such, we believe that investors should not rush into buying the stock now. While current shareholders should hold their position, new investors should wait for the stock to retract some of its recent gains, providing an attractive valuation for entry.
Image: Shutterstock
ISRG Stock Rallies 14% in 3 Months: Is It Still Worth Buying?
Shares of Intuitive Surgical (ISRG - Free Report) have risen 14.2% in the past three months, outperforming the Zacks Medical - Instruments industry’s growth of 3.8% and the broader Zacks Medical sector’s return of 5.4%. ISRG stock has risen 45.7% year to date, primarily due to strong demand for its robotic surgery procedures.
The uptrend is likely to continue for the rest of 2024 as improving da Vinci procedures should continue to attract investors going forward. The company’s newly launched da Vinci 5 is also showing strong uptake since its launch in March.
Moreover, ISRG expects da Vinci 5’s advanced imaging to drive market penetration and open new targeted segments. The significant growth in ISRG’s Ion procedures shows prospects for continued top-line improvement in the upcoming quarters.
The company’s continued focus on upgrading its systems has played a pivotal role in sustaining its growth. The systems’ minimally invasive nature has helped in the wide adoption of certain surgical procedures.
Meanwhile, ISRG’s shares are trading above the 50-day and the 200-day moving average, indicating a bullish trend.
ISRG Stock Trades Above 50-Day Average
Image Source: Zacks Investment Research
Intuitive Surgical expects procedure volume to grow 14-17% in 2024, continuing to drive the top line higher. The demand for medical procedures began to rebound in 2023 following the COVID-19 disruption. This resulted in strong growth.
Although procedure volume continues to improve, the company’s growth expectation for its procedures for fiscal 2024 is slightly below the pre-pandemic growth rate of 18% for full-year 2019. The Zacks Consensus Estimate for 2024 revenues reflects a year-over-year improvement of 13.7%.
The strong growth in procedure volume is likely to continue in the upcoming quarters due to the rising demand for da Vinci 5 on the back of its advanced features and shorter console time. The new device has covered only 10% of its targeted market, giving it enough space for growth.
Meanwhile, robotic procedures are leading to clinical and cost benefits for its users, driving strong adoption. ISRG’s broad product portfolio and flexible financing options are helping the company to ward off strong competition in the industry. The recovering catheter supply for ISRG’s another robotic system, Ion modulation system, bodes well.
However, the procedure growth rate may get hurt during the second half, reflecting the increased adverse impact of soft demand for bariatric procedures and increasing headwinds in Asia from prolonged physician strikes in Korea, delayed tenders and emerging domestic robotic systems in China. The company has maintained its guidance for full-year 2024.
ISRG expects gross margin in 2024 to be 68.5-69%, higher than 68% in 2023. The growth should be primarily driven by the strong uptake of da Vinci 5, improving supply challenges and realization of lower cost of materials. Moreover, the company lowered its operating expenses growth estimate to 10-13% from 11-15% (projected during the first-quarter earnings call).The improvement in costs and expenses is likely to drive earnings higher during the second half of 2024.
The Zacks Consensus Estimate for 2024 earnings is currently pegged at $6.67 per share, indicating a 16.8% year-over-year improvement. The estimate improved 6.5% over the past 60 days.
Image Source: Zacks Investment Research
Expanding Portfolio Aids Long-term Prospects
ISRG’s expanding portfolio aids long-term prospects. In March, it received FDA approval for its da Vinci 5 fifth-generation multiport robotic system. The newest member of the da Vinci family is da Vinci 5, which also comprises the single-port da Vinci SP and the multiport da Vinci X and Xi systems. This was followed by FDA 510(k) clearance of a labeling revision for its da Vinci X and Xi specific to radical prostatectomy in June.
These clearances are likely to boost Intuitive Surgical’s business and generate additional revenues with new installations and wider procedure support. The installed base of the da Vinci system grew approximately 14% year over year during the second quarter of 2024.
Apart from da Vinci systems, Intuitive Surgical launched the Ion endoluminal system in 2019, extending its commercial offering beyond surgery into diagnostic endoluminal procedures. The system received approval in Europe and South Korea in 2023. It received approval in China during the first quarter of 2024.
Per the second-quarter 2024 earnings call, the installed base of Ion modulation system grew approximately 56% year over year to 678 units. The company completed approximately 23,200 Ion procedures in the second quarter, reflecting year-over-year growth of 82%.
Challenging Market Scenario Persists
Although ISRG has a strong product portfolio with significant opportunities, the company faces huge competition from large and well-established companies, such as Johnson & Johnson (JNJ - Free Report) and Medtronic (MDT - Free Report) , which are also focused on developing robotically controlled products. These companies have strong balance sheets and commercial networks to support the development and launch of new products. This can significantly affect ISRG’s prospects.
Meanwhile, any rise in supply-chain issues amid continuing geopolitical tensions may lead to choppy da Vinci 5 system placements in 2024. Any setback to recovering catheter supply may adversely impact Ion modulation system sales. Moreover, weakness in bariatric procedures, along with challenges in China from increasing provincial robotic competition and delayed tenders affecting capital placements, is likely to have a nearly three percentage point headwind for revenues in 2024.
Wrapping Up
Intuitive Surgical’s top and bottom-line performances are likely to remain strong in 2024 on the back of continued growth in the company’s da Vinci procedure volume, coupled with strong Ion procedure growth. ISRG is also increasing the pricing of procedures that should aid in 2024 sales growth. Improving procedure volume, along with better system placements and services across all markets, should drive top-line growth this year.
The launch of da Vinci SP in Europe and da Vinci 5 in the U.S. market should drive system placements higher. However, ongoing supply-chain constraints, although easing, are likely to hurt the availability of devices. Weakness in bariatric procedures and challenges in China are likely to offset growth in the upcoming quarters.
Although ISRG carries a favorable Zacks Rank at present, its style scores don’t look quite promising. The company has a Value score of F and Momentum and Growth scores of D and C, respectively. As such, we believe that investors should not rush into buying the stock now. While current shareholders should hold their position, new investors should wait for the stock to retract some of its recent gains, providing an attractive valuation for entry.
ISRG YTD Performance
Image Source: Zacks Investment Research
Intuitive Surgical currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.