Why Intuitive Surgical, Inc.'s Latest Quarterly Beat Is a Huge Deal

Intuitive Surgical stock

Credit: Intuitive Surgical

Intuitive Surgical, (NASDAQ: ISRG  ) just crushed analysts' expectations with its second-quarter results, driving shares nearly 15% higher in Wednesday's early trading. But that's not the only reason shareholders of the robotic surgical specialist are rejoicing today.

Though Intuitive Surgical's adjusted quarterly revenue fell 12% year over year, to $507 million, Wall Street was only modeling sales of $502.23 million. Better yet, Intuitive Surgical achieved adjusted net income of $140 million, or $3.73 per share, which absolutely trounced consensus estimates for earnings of $2.83 per share.

Of course, Intuitive Surgical stopped offering guidance earlier this year because of uncertainty and a lack of visibility in its core markets, so it's hard to blame analysts for missing the mark by such a wide margin. But it's also worth keeping in mind that Intuitive Surgical's outsized earnings beat was exaggerated by a massive $1 billion accelerated share repurchase program announced in early May, under which the majority of roughly 2.5 million shares have already been received and retired. Even then, Intuitive Surgical still ended the second quarter with a whopping $2 billion in cash and equivalents on its balance sheet.

Progress beyond the numbers
So why else are investors excited today?

Intuitive Surgical stock

Intuitive Surgical's da Vinci Xi has seen positive market reception so far. Credit: Intuitive Surgical.

First, Intuitive Surgical showed notable progress in shipping shipping 96 da Vinci Surgical System units in the second quarter, or a nine-unit sequential improvement over the 87 systems it shipped in the first quarter. By comparison, this time last year, Intuitive had just reported a 21-unit sequential decline to 143 systems shipped in Q2, 2013.

In addition, worldwide procedures in the second quarter grew 9% year over year, and 8% sequentially, driven by growth in both U.S. general surgery procedures and international urologic procedures. In short, and despite worries about litigation to assign blame for surgical complications using its systems, surgeons have no qualms continuing to utilize Intuitive Surgical's platform.

On that note, Intuitive Surgical CEO Dr. Gary Guthart also stated that 50 of the 96 systems shipped last quarter were for the company's recently launched da Vinci Xi Surgical System, and that "the market reception for it has been very positive." That's relatively unsurprising considering da Vinci Xi offers several significant technical improvements over its predecessor; but investors should be pleased to hear follow-up confirmation that customers are warmly embracing Intuitive's new tech.

So where does that leave investors today? To be sure, I'll admit shares don't look terribly cheap right now trading around seven times trailing 12-month sales, and 30 times next year's expected earnings. At the same time, however, those estimates are likely to climb after analysts have time to fully digest today's news. And over the long term, we're also talking about an innovative, massively profitable industry leader with a huge head start in a market with significant barriers to entry. As a result, I think it's safe to say Intuitive Surgical should be able to continue rewarding patient shareholders from here.

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8/28/2015 3:59 PM
ISRG $514.24 Down -1.33 -0.26%
Intuitive Surgical CAPS Rating: ****