Can Intuitive Surgical Earnings Overcome Its Controversy?

Intuitive Surgical (NASDAQ: ISRG  ) will release its quarterly report on Thursday, but don't expect shareholders to be too excited about the report. Shares of the company recently traded at their lowest levels in nearly two years, and with ongoing controversy about the company's da Vinci robotic surgical systems, it's unclear whether Intuitive Surgical earnings can hold up to the pressure the stock is under right now.

Intuitive Surgical was once the darling of the stock market, as its innovative machines helped take robotic surgery out of the realm of science fiction to become much more widely accepted. Now, though, the systems have been around long enough to invite critiques from medical professionals and patients alike, with some questioning whether the devices' effectiveness justifies their cost. Let's take an early look at what's been happening with Intuitive Surgical over the past quarter and what we're likely to see in its quarterly report.

Stats on Intuitive Surgical

Analyst EPS Estimate

$4.04

Change From Year-Ago EPS

7.7%

Revenue Estimate

$594.58 million

Change From Year-Ago Revenue

10.8%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

What'll drive Intuitive Surgical earnings this quarter?
Over the past few months, analysts have ramped down their views on where Intuitive Surgical earnings will land. They've cut their June-quarter estimates by more than $0.30 per share, making similar cuts to full-year 2013 expectations and cutting their 2014 views by double that amount. The stock has plunged recently, falling 17% since early April.

Most of those losses have come in the past week, as Intuitive Surgical issued some preliminary results from the second quarter. In the early report, the company said that it expected net income of $160 million on sales of $575 million, with both figures being roughly 10% below what analysts had previously expected. The company cited hospitals holding off on purchases, weakness in hospital admissions numbers, and conservative decisions from health insurance companies as weighing on its results, even though it reported an 18% jump in the number of surgical procedures performed. MAKO Surgical (UNKNOWN: MAKO.DL  ) has also pulled back on the news, as investors fear that the same trends will affect its results adversely as well -- with potentially greater ramifications, given that, unlike Intuitive, MAKO isn't profitable.

Much of the attention on Intuitive Surgical lately has focused on comments from regulators and medical professionals about the devices. Earlier this year, the FDA announced an investigation into the company, and even though its findings weren't particularly problematic, it nevertheless brought Intuitive Surgical's name into the limelight in a negative way. Moreover, some medical professionals have questioned whether robotic surgery has benefits for hysterectomy patients over more traditional methods of performing the procedure.

But it's the second-order effects of that attention that seem to be having the biggest impact on Intuitive Surgical earnings. As medical facilities and health-insurance companies both start having to deal with the full ramifications of the implementation of Obamacare, they have to deal with uncertainty about how much of their costs they'll be able to recoup under the new health-care law. That's likely one of the driving forces behind the "conservative decisions" about treatment options, and combined with the 2.3% medical-device excise tax, Intuitive Surgical could continue to see headwinds until Obamacare becomes less of a wild card and more of a known factor.

In Intuitive Surgical's earnings report, watch for further color on the comments it already made in its preliminary release. Without decisive action, the company could find its stock stuck at these lower levels for some time.

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