Intuitive Surgical Earnings: Can da Vinci Bounce Back?

Intuitive Surgical (NASDAQ: ISRG  ) will release its quarterly report on Thursday, and investors hope that the robotic-surgical company is able to mount a turnaround after a tough 2013. Even as controversy continues to swirl over the future of robotics in surgery, the completion of Stryker's (NYSE: SYK  ) takeover of MAKO Surgical and the continued growth in Accuray (NASDAQ: ARAY  ) indicate the optimism that many industry players have in the technology. Still, with competition from Johnson & Johnson (NYSE: JNJ  ) and Covidien potentially making robotic surgery less attractive in its key focus areas, Intuitive Surgical earnings could still remain under pressure until the company can reassure medical professionals that the technology is sound, safe, and advantageous for patients.

For years, Intuitive Surgical was a growth leader in the medical-device industry, with seemingly unlimited growth potential as its da Vinci surgical system gained acceptance and became more extensively used in the medical profession. But the high cost of the system made hospitals hesitant to make large capital expenditures to obtain systems during the recent recession, and the ongoing transformation in the health-care industry has cast a shadow over Intuitive Surgical. At the same time, an FDA investigation also contributed to falling sales. 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 report.

Stats on Intuitive Surgical

Analyst EPS Estimate

$3.81

Change From Year-Ago EPS

(10.4%)

Revenue Estimate

$558.66 million

Change From Year-Ago Revenue

(8.3%)

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

What's next for Intuitive Surgical earnings?
In recent months, analysts have been less than certain about the prospects for Intuitive Surgical earnings, cutting almost a quarter per share from their full-year 2014 estimates. The stock, though, has rebounded, rising 10% since mid-October.

Nearly all of the gains in the stock came when Intuitive Surgical gave its preliminary figures for the just-completed fourth quarter. Even though the company said that revenue would fall about 5% from year-ago levels, Intuitive Surgical said that gains in sales from instruments and accessories rose 6%, reflecting the 16% rise in surgical-procedure volume the company experienced for the full 2013 year. Service revenue also gained, helping to offset another big drop of more than 20% in da Vinci system sales for the quarter. That trend was similar to what Intuitive Surgical saw in the third quarter, with a 32% drop in systems revenue weighing against double-digit percentage gains in services and instruments and accessories sales.

Source: Intuitive Surgical.

Despite its struggles, though, Intuitive Surgical's fundamentals still look stronger than its peers. Before Stryker bought MAKO, the rival surgical device maker was still consistently unprofitable, and revenue growth was somewhat haphazard. Similarly, Accuray has seen its revenue steadily decline over the past couple of years, with continued losses plaguing the small company. By contrast, even with Intuitive Surgical's difficulties, the company is solidly profitable.

Lately, Intuitive Surgical has started to get some support from the medical community. A report in the Journal of Endourology found that certain robotic prostatectomy procedures led to shorter hospital stays and fewer complications than traditional open surgery. Yet some analysts remain unconvinced, pointing instead to uncertainty about reimbursements under federal health-care programs and the possible need for Intuitive Surgical to offer da Vinci systems at discounted prices. Moreover, with Johnson & Johnson and Covidien offering minimally invasive surgical products that can reduce the downsides of open surgery, hospitals could continue to remain skeptical of the need to buy da Vinci systems.

In the Intuitive Surgical earnings report, watch for the company to give more details on exactly what sorts of procedures have been most popular for the da Vinci system. As investors get more comfortable with the trends affecting the industry, they might see more of a long-term upside for Intuitive Surgical -- even if they have to wait until adverse impacts from the Affordable Care Act and other headwinds resolve themselves.

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