Intuitive Surgical: The Wonder Stock

Intuitive Surgical (ISRG) is set to report earnings after the close tomorrow. For those not familiar with the name, ISRG develops robotic surgical systems and has gone from the single digits in 2003 to a price of $344 today. To say that ISRG has been a good performer since going public would be the understatement of the year.

Part of that performance has been caused by the astonishing moves it has made in reaction to its quarterly earnings reports. As shown in the bottom table below, the company has beaten earnings estimates 100% of the time for the quarterly reports we have on file since mid-2004. Its average 1-day change in reaction to all earnings reports has been 11.24% (yes, 11.24%), and it has gained an average of 16.79% on the day following its last 5 reports. On the day following its evening report on January 31st, it was up $51.61 (20.32%), and it went up 32% following its July 2007 report.

To say that expectations are high for tomorrow's report is also a huge understatement. With investors so used to an earnings "beat" along with big gains, anything less than a strong beat will most likely be met with heavy selling pressure. But we thought the same thing prior to its last report and once again it didn't disappoint.

click to enlarge

Comments

[Dan Jacome:]

ISRG April 340 straddle is priced at $42.90 implying we'll see a 10-12% move one way or the other on Thursday

disc: long ISRG

2008 Apr 16 07:27 PM

[BigJimmyD:]

Correct, that after the 1/31/08 earnings the stock price rose $51.61 (20.32%). But that was preceeded by an analyst comment (copy below) (of questionable motivation) that caused the price to drop by $33.27, or 12 percent. So the net gain from earnings was $18.34 or 8%. So this article is misleading.

Intuitive Surgical Shares Fall 7 Percent
Tuesday January 29, 7:12 pm ET
Oppenheimer Analyst Says Growth to Slow for Intuitive Surgical in 2008, Shares Fall

NEW YORK (AP) -- Shares of medical device maker Intuitive Surgical Inc. fell sharply Tuesday as an Oppenheimer & Co. analyst said the company's strong growth will slow in 2008 on fewer U.S. sales of the da Vinci surgical system, due to market saturation and a lack of adoption by gynecologists for hysterectomy procedures.
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Analyst Amit Hazan said Intuitive Surgical is the most expensive stock in the medical technology sector, a value driven by both the company's robust growth rates and by results consistently beating Wall Street expectations by wide margins. Intuitive's da Vinci system allows doctors to perform robot-aided surgery through small openings in the patient's body from a remote console.

But although he expects fourth-quarter results will once again exceed estimates, he thinks 2008 sales guidance will fall slightly below the $817 million consensus estimate. He cited slowing U.S. system placement growth and lack of upside from hysterectomy procedures due to gynecologists' unexplainable trepidation about adopting newer, less invasive technology and little to no patient awareness about the system's availablity.

"In short, as growth comes back to earth, the premium paid will likely be reduced, and we see fair value at below current levels," Hazan wrote in a note to clients. He emphasized caution on the stock in 2008.

Shares fell $33.27, or 12 percent, to $244.30 Tuesday.

Cowen and Co. analyst Eli Kammerman also expects Intuitive Surgical's fourth-quarter results to top Wall Street expectations when the company reports financials on Thursday, and predicts management will issue conservative sales guidance for 2008. But he thinks better-than-expected procedure volumes are probable in gynecology in 2008 and in a note to clients late Wednesday reiterated an "Outperform" rating on the stock.

Kammerman predicts Intuitive Surgical shares will outperform the market by 20 percent this year.

2008 Apr 16 07:47 PM

[Matt Castle:]

After GE's big miss on the medical imagine related equipment due to the increased cost of borrowing funds incurred by hospitals, I'm reluctant to buy ahead of the earnings. If ISRG misses, it could be serious pain for those in the stock now. Then again, earnings season is always incurs a substantial risk.

2008 Apr 17 08:08 AM

[globalmacro:]

Good analysis

2008 Apr 17 06:32 PM

[allok:]

WHY friday sell off ?????

2008 Apr 19 08:17 AM