Donald Johnson

GE's Dismal Earnings a Warning for Other Medical Device Companies

That should be that if hospitals seen the number of patients who don't and won't pay their bills going up or about too, they have to manage their cash flow, and one way they do that is cut capital spending. This could and is likely to happen during a recession.

GE's Dismal Earnings a Warning for Other Medical Device Companies

I'm not trying to puncture ISRG's bubble, but I think that you'll find that when hospitals see their cash flow threatened by new Medicare and Medicaid reimbursement rules or by increases in their uninsured and collectible patient numbers, you'll see that they cut back on buying new technology. You might want to take a look at the cap expenditures numbers for the last 10 or 15 years at THC, HMA, LPNT and UHS, which are fairly good proxies for the hospital industry.

Morningstar's discounted cash flow Fair Value estimate for ISRG is still only $175. It says its FV estimate uncertainty is high and consider buying the stock at $113.80 and consider selling around $262. The PE is 90 and the price/cash flow is a very expensive 63.

So beware the cheerleaders. If ISRG misses by a penney, look out below. I'm not saying it will, just that it's a very volatile, and I think, risky stock at the current price.

GE's Dismal Earnings a Warning for Other Medical Device Companies

After I submitted this post, Seeking Alpha posted GE's earnings call transcript, and I wrote the following brief update:

<i>Update: In their conference call, GE's executives said they think funding will continue to be a problem for clinics and hospitals. They also noted that the unit's first quarter wasn't as bad as the figures suggest, because accounting changes made last year look a bit stronger than it was.</i>

Also, I've since posted a comment about health care stocks' vulnerability to a recession on my blog, which I'll submit to SA later today.