Intuitive Surgical Tanks: Here's What I'm Doing

After the market closed yesterday, Intuitive Surgical (NASDAQ: ISRG  )  -- maker of the da Vinci Robotic Surgical System -- announced preliminary results for the second quarter that caused shares to plunge as much as 17% today.

Read below to find out why the reaction has been so negative, and -- with Intuitive stock making up over 5% of my real-life holdings -- what I'll be doing as a shareholder.

Moving in the wrong direction stateside
Intuitive announced that for the second quarter of 2013, revenue would be $575 million. While that's 7% better than last year, it's well below the consensus estimate of $630 million.

Just as important, it shows growth slowing dramatically compared to previous years.

Sources: SEC filings, E*Trade.

While procedures and instrument sales were up a healthy 18% -- and service revenue was up 14% -- it was revenue from the sales of new da Vinci systems that were down 6%. The main culprit behind the miss was a dramatic reduction in the sales of new da Vinci Systems in the United States.

Source: SEC filings. 

A perfect storm brewing
This year hasn't been kind to shareholders of Intuitive Stock. The FDA announced earlier this year that it was opening an investigation into the company. Though that didn't yield any earth-shattering findings, it came right in the middle  of medical professionals publicly questioning whether the da Vinci System had any real benefits for hysterectomy patients.

Though it's impossible to tell what's behind this miss, the company said, "increased economic pressure on hospitals... and moderating growth in our benign gynecologic procedures," were to blame.

Though I'm no medical professional, as someone who has been following the company for years now, I have two thoughts on what this means.

First, fellow Fool Sean Williams put out an excellent piece on how Obamacare could be affecting domestic weakness. Although hospitals are thought to be a main beneficiary of the new law, Intuitive products are now carrying a heavier tax burden. Even more important, there are a lot of unanswered questions when it comes to costs under Obamacare. And as well all know, with uncertainty comes conservative spending practices, forcing hospitals to put large purchases on hold.

Second, it's becoming clearer by the day that medical professionals are turning a more critical -- and vocal -- eye to the cost benefits of using the da Vinci System. Back in December 2012,  I lowered my personal allocation to Intuitive because the company warned that prostate patients were adopting more conservative treatment options. In plain English, that means they weren't having procedures performed with da Vinci unless absolutely necessary.

This year, it's hysterectomies -- the company's most oft-performed operation -- that have come into question. Just as with prostatectomies, it now seems hysterectomy growth will be tempered.

What I'm doing
Does this mean I'm selling my Intuitive Surgical shares? No. In the grand scheme of things, I'm glad that medical professionals are encouraging some patients to forgo da Vinci surgery if it isn't necessary. There's no doubt that, in the short term, that's going to hurt the company financially.

But I'm a long-term investor, and while the da Vinci might not be used quite so liberally for procedures any more, there's still tons of room for growth both internationally and in terms of being approved for ever-more procedures. The machine offers patients a less-invasive option that decreases recovery time. Long term, I think that's a winning bet.

I'm hoping that once hospitals get a handle on what Obamacare will look like, system purchases will pick up again.

If you're still in the dark about how Obamacare might affect you and your portfolio, don't worry -- you're not alone.

There are massive changes coming to the American health care system, and we've prepared "Everything You Need to Know About Obamacare" to help you discover how the law may impact your taxes, health insurance, and investments. Click here for your free copy today.


Read/Post Comments (6) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 09, 2013, at 2:44 PM, 8TCInvesting wrote:

    I follow ISRG as an options trader. I have a more general question.

    Why is it that companies feel compelled to reveal BAD news 2 to 3 weeks BEFORE the official earnings report date?

    They never tell us anything GOOD ahead of time, they just unload bad news in an unexpected fashion (that is if you are not privy to insider information).

    I would rather hear both the good & the bad on the official date!

  • Report this Comment On July 09, 2013, at 3:06 PM, wolfhounds wrote:

    I'm a long time ISRG investor who retired last year. I thought that was a good time to sell half my holdings. While not a chart watcher, it did seem strange to me that the stock wasn't propelled after 1st qtr. as in the past. I sold the last half at $510.

    My point is, with all the uncertainties surrounding this company, anyone with gains should lock them in. There is no guarantee that future sales will resemble past growth.

  • Report this Comment On July 09, 2013, at 3:12 PM, mmoser105 wrote:

    I agree-perhaps the short positions needed some hefty profit time time similar to the infamous Goldman-Sachs "Credit Default Swaps".

    Sorry for the sarcasm, this event came out of nowhere. I'm loosing respect.

  • Report this Comment On July 09, 2013, at 3:55 PM, NeedaClue7 wrote:

    It all depends on your assessment and your appetite for risk. This could be a speed bump or it could be something more systemic. I tend to agree with the author that the future is still bright (even if it may take a little longer to brighten), so I'm holding and may even add more if the market punishes the stock further.

  • Report this Comment On July 15, 2013, at 1:42 AM, BillFromNY wrote:

    If ISRG were only five percent of my portfolio, I wouldn't have any trouble holding it.

    But I suspect that a lot of Fools are much more heavily invested in this company - like up to fifty percent.

    In that case, if you have a large amount of paper profits I think that wolfhounds initial response of selling half of his holdings makes sense.

    It's no sin to take some profits, especially with a company that is hard to follow between earnings reports.

    You will feel bad if you miss out on some profits by selling, but not nearly as bad as you will feel if you lose all your profit by stubbornly hanging on to the shares with the belief that the drop is not justified and the price will come back.

  • Report this Comment On July 26, 2013, at 3:02 PM, Truth2Power wrote:

    Bill,

    If *any* Fool is invested 50% in a single company, they need to diversify or stop calling themselves Foolish!

    --Truth2Power

Add your comment.

DocumentId: 2528062, ~/Articles/ArticleHandler.aspx, 4/21/2014 1:18:45 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement