The Real Reason Intuitive Surgical, Inc. Is Tanking, Yet Again

It's not terrible earnings or revenue.

Apr 23, 2014 at 2:30PM

It's hard to believe, but even though Intuitive Surgical (NASDAQ:ISRG) announced yesterday that revenue fell 24% and earnings dipped 60%, those two numbers are not the reason the company's stock is selling off today.

That's because Intuitive already warned investors earlier this month that this is what the picture would look like. What, then, accounts for today's drop? Read below to find out.

Screen Shot

Source: Intuitive Surgical

The news that really had investors worried was the fact that the company cut the mid-range of procedure growth for the year from 10.5% all the way down to 5%.

Remember, this is a growth company with a stock trading for a growth-like multiple of 28 times earnings. When you tell investors that additional procedures are going to only come in at half of what you were originally expecting, there's going to be pressure on shares.

What does this really mean?
Intuitive doesn't break out exactly how many procedures are performed each quarter -- they only release that information at the end of the year. They do, however, let investors know how much procedures grew each quarter. During the first quarter, that was 7%. The realization that the full-year growth is expected to be around 5% means the company sees some tepid quarters ahead.

In previous years, procedures easily grew by double digits every year, so single-digit procedure growth is a big change -- and one investors are understandably concerned about.

The main culprit in all of this is, as before, the reduction in hysterectomies performed using Intuitive's daVinci surgical robot. To get an idea for how important gynecology, in general, and hysterectomies, in particular, are to the company, look at the breakdown of how the machine was used in 2013.

Screen Shot

Source: Intuitive Surgical

Clearly, the medical community's doubts about the efficacy and cost-effectiveness of da Vinci in benign hysterectomies is having an effect on the bottom line for Intuitive Surgical.

Moving forward, we have a stock that is trading for -- as I said -- about 28 times earnings and 22 times free cash flow. If you're new to investing, these aren't ridiculously high numbers, but they are above what you'd expect for a company that's experiencing as much trouble as Intuitive is.

The key moving forward will be the performance of Intuitive's new da Vinci Xi machine, and its ability to help diversify operations away from hysterectomies, and toward other procedures. With that, today could be a buying opportunity. Without it, the fall could just be getting started.

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Brian Stoffel owns shares of Intuitive Surgical. The Motley Fool recommends Intuitive Surgical. The Motley Fool 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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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