Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

What Intuitive Surgical Just Said About Its Future

By Todd Campbell - Updated Apr 16, 2019 at 8:57PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The robotic-surgery Goliath offered up a rosy outlook at the J. P. Morgan Healthcare Conference this week.

Intuitive Surgical ( ISRG -1.74% ) is the world's largest robotic-surgery company, and at J. P. Morgan's annual high-profile healthcare conference this week, management unveiled its latest financial results and an updated outlook for its future. The potential for robotic surgery to reduce surgical errors and improve patient recovery times continues to drive its use higher and innovations are expanding the approach to more procedures. Is this disruptive company a stock worth buying?

Firing on all cylinders

As part of its presentation to industry watchers this week, Intuitive Surgical released preliminary fourth-quarter financials that suggest the company's business is humming along nicely. 

A business man looks through binoculars.


In the quarter, sales grew 17% year-over-year to $1.05 billion as procedures using the company's da Vinci surgical system increased by 19%. The company also says it shipped 290 da Vinci systems to hospitals and surgery centers in the quarter, up 34% from the same period last year. 

The strong quarter resulted in full-year 2018 sales of $3.72 billion, up 19% from 2017, and total procedures eclipsing 1 million in one year for the first time. Overall, Intuitive Surgical shipped 926 systems in 2018. 

The growth in procedures is particularly important to investors because Intuitive Surgical derives a lot of its sales from disposables used in procedures, and those disposables offer higher margins than da Vinci systems. Management didn't provide any preliminary bottom-line figures for the quarter, however, so investors will have to wait until the company reports its audited quarterly and annual financials on January 24, 2019 to find out how much of its top-line growth flowed to earnings.

Metric Q4 2018 YOY % Change for Q4 2018 FY 2018 YOY % Change for FY 2018
Revenue $1.05 billion 17% $3.72 billion 19%
Da Vinci shipments 290 34% 926 35%
Instrument/accessories sales $539 million 18% $1.96 billion 20%
Systems revenue  $341 million 20% $1.13 billion 21%
Services revenue $167 million 11% $635 million 11%

Data source: Intuitive Surgical. YOY = year over year.

What the numbers say about the company

The number of procedures done using da Vinci is critical to the company's future success, and fortunately, this figure remains strong. In the fourth quarter, procedures grew 19% year over year, which is similar to the 20% growth reported in the third quarter and 18% growth reported in the second quarter. For the full year, procedures were up 18%, which is at the high end of its guidance of 17% to 18% exiting the third quarter and nicely higher than its guidance of 12% to 15% exiting Q1 2018.

The company didn't break out U.S.-versus-international procedure growth, so it will be important to see how those figures look when the company reports its full results later this month. In Q3, procedures done in markets outside America grew 23%, outpacing the 19% growth in the United States.

In addition to faster growth in foreign markets, procedures are also benefiting from innovation that's allowing da Vinci to be used in more types of surgeries. In prior quarters, procedure growth has come largely from increasing use in general surgery, particularly hernia repair and colorectal procedures, due to new instruments. The use of da Vinci is more common in urology and gynecology, so those mature markets are growing in line with the rate of diagnosis, rather than because Intuitive Surgical is convincing more surgeons and administrators of da Vinci's advantages over freehand surgery, such as lower complication rates. In Q4, use of da Vinci in general surgery grew 34% year over year. Growth was more muted in urology and gynecology, increasing by 5% and 8%, respectively.

Overall, Intuitive Surgical's double-digit procedure and revenue growth offer a lot for investors to like and little reason to worry earnings per share will fall far shy of industry watchers' outlook, which ranges between $10.93 and $11.50 for the full year 2018. The one ding in the quarter, however, is that average prices for systems, instruments, and accessories slipped 1% from last year.

What management's saying about its future

In the short term, investors should recognize Intuitive Surgical's business is subject to seasonality. Historically, procedure volume tends to dip in the first quarter from the fourth quarter, and the first quarter has been the weakest in terms of da Vinci system sales. Therefore, it could be best to model for a slowdown in growth in Q1, followed by a reacceleration as the year progresses. For the full year, management thinks procedures will increase between 13% to 17% in 2019.

Looking at the longer term, management reports that 21.8 million invasive surgeries are performed in the U.S. alone every year. That suggests there's plenty more room for margin-friendly procedure growth, despite da Vinci's use in over 1 million surgeries in 2018. 

Check out the latest Intuitive Surgical earnings call transcript.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Intuitive Surgical, Inc. Stock Quote
Intuitive Surgical, Inc.
$321.63 (-1.74%) $-5.69
JPMorgan Chase & Co. Stock Quote
JPMorgan Chase & Co.
$158.29 (-1.81%) $-2.92

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/06/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.