Why Intuitive Surgical, Inc. Might Pull Back

Does this analyst make a good case or is it just more noise from Wall Street?

Mar 4, 2014 at 4:36PM

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Intuitive Surgical (NASDAQ:ISRG) slipped about 2% this morning after Cantor downgraded the robotic surgery technologist from buy to hold.

So what: Along with the downgrade, analyst Jeremy Feffer reiterated his price target of $450, pretty much in line with the stock's current levels. Although Feffer continues to be bullish on Intuitive's long-term growth drivers, he thinks that Wall Street is underestimating the risks surrounding its near-term growth trajectory.

Now what: According to Cantor, Intuitive's risk/reward trade-off is fairly balanced at this point. "While we remain positive on the long-term story, we have near-term concerns about the stock's current valuation relative to what we expect will be at least two more difficult quarters," Feffer said. "We applaud the company's efforts to use this 'down' year to reinvest in the business -- both in new products and expanding its O-U.S. sales infrastructure -- but in our view, too many uncertainties remain with respect to hospital spending and procedure volumes to justify a significantly higher multiple at this point." Of course, with Intuitive continuing to boast a cash-rich balance sheet, as well as stock that's now off about 15% from its 52-week highs, those short-term concerns might be providing patient Fools with a relatively safe long-term growth opportunity.

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Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Intuitive Surgical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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