Intuitive Surgical: Even Great Companies Hit Valuation Peaks

CIBC is out cautious on Intuitive Surgical (NASDAQ:ISRG) saying the stock has run up 67% since 2Q earnings, and they feel the current valuation is reflecting expectations for another blowout in 3Q. The key metric to watch is still new units. ISRG likely will have to significantly beat CIBC's worldwide 56-unit est for the stock to work higher, which they do not expect.

As for specifics on 3Q, the firm expects ISRG to slightly beat their estimates for sales and EPS of $146 million and $0.85, which are above Street estimates of $143 million and $0.79, respectively. Again, their bottom line is that it will not be enough NT, and so they're very cautious heading into the call.

Even great companies can reach valuation peaks, and ISRG common today may not offer the same returns as those to which its investors have grown accustomed. As growth comes back to earth next year (as the firm expects it will), the premium paid will likely be reduced, and the stock likely would be notably lower than today, heading into 2H08.

Notablecalls: This is the first time I have seen such cautious comments on ISRG coming from a serious player as CIBC. I have gone over the other previews and I must say the sell side hasn't picked up any signals of a major beat. Almost everyone sees ISRG coming in in-line with consensus. Yet, looking at the chart, it's pretty obvious a sizable beat is expected by market participants.

ISRG is scheduled to report in 2 days and I suspect we will see weakness in the stock ahead of the release. Shorting here looks like the sensible thing to do.

Comments

[michel monnin:]

very acurate thinking about these rocket stocks....even love have limits!

2007 Oct 17 06:50 PM

[nitadmin:]

ISRG is growth company. It has great future. I Predict by Nov this stock will be trading at 290 to 305 per share.

2007 Oct 17 11:08 PM

[User 115548:]

I guess you got it right. I hope you are short

2007 Oct 21 02:12 PM

[User 115548:]

I guess you got it right. I hope you are short

2007 Oct 21 02:12 PM

[Dan Jacome:]

Stock blew away estimates. This stock breaks 300 by Turkey Day.....

2007 Oct 21 06:30 PM

[mister don:]

Wow....careful trying to pick tops. If you really shorted this rocket, you probably don't have enough money left to pay next months cable bill. OUCH. Wait for it to trade sideways a bit before even dreaming about shorting this thing. What next...shorting AAPL or RIMM??

2007 Oct 23 09:56 PM