Why Intuitive Surgical Inc. Shares Fell

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Intuitive Surgical (NASDAQ: ISRG  ) , developer of the da Vinci robotic soft tissue surgical system, were sliced and diced by as much as 12% after the company reported disappointing first-quarter results after the closing bell last night.

So what: For the quarter, Intuitive Surgical reported a 24% decline in revenue to $464.7 million with the biggest culprit being a significant drop in the number of da Vinci surgical systems it sold (87 this quarter compared to 164 in the year-ago quarter). Overall, systems revenue tumbled to just $106 million from $256 million, while service revenue also dipped by 10%. Net income for the period fell 77% to $1.13. Intuitive Surgical's press release blamed weaker procedure growth, but also pointed to a tighter hospital spending environment on the heels of the Affordable Care Act's implementation as a reason for the disappointing results. Making matters worse, in its conference call the company now expects procedure growth to dip to a range of 2%-8% from a prior forecast of 9%-12% for the year.

Now what: This was undoubtedly an ugly quarter for Intuitive Surgical. The uncertainties of the Obamacare rollout spoiled its ability to sell robotic surgical systems that cost close to $2 million each and also hampered its procedure volume as insurers were leery about paying the higher costs associated with robotic surgery for their members.

But I also believe today could be an intriguing buying opportunity. Consider for a moment that Obamacare's late-March surge in enrollment should lessen hospital operators' fears of having to treat a number of uninsured or underinsured patients. This should reduce the amount hospitals write off as uncollectable each year and give them spending capital that can be used on state-of-the-art equipment, such as what Intuitive Surgical has to offer.

I'd also point to its first-in-class status within the soft tissue surgical arena. There just isn't any competitor out there that has the breadth of training or systems in place as Intuitive Surgical. This gives the company incredible branding and pricing power which is can exploit to its advantage. This is definitely a rough patch for investors, but I continue to see a bright future for this company and would suggest you add it to your watchlist and consider digging a bit deeper into its product line.

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