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Is Intuitive Surgical a Buy on the Dip?

By Cory Renauer – Oct 9, 2021 at 6:23AM

Key Points

  • Shares of the robot-assisted surgery pioneer have slid from their all-time high last month.
  • Pandemic-related pressure could make the second half of 2021 less profitable for Intuitive Surgical than the first half was.
  • A lack of competitive pressure on Intuitive Surgical will most likely continue into the long term.

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An analyst's downgrade following downbeat comments from management has pushed the robotic surgery company's stock down to an attractive price.

Intuitive Surgical (ISRG 1.19%) investors who weren't expecting it to perform a three-for-one stock split recently woke up to what looked like an overnight loss of more than 60%. Now that the dust has settled and the data reporting services are all caught up, the stock's split-adjusted price is still down by more than 7% from the all-time high water mark set in early September.

Intuitive Surgical's share price performance in recent weeks might be something most of its shareholders want to forget. Those who took advantage and bought the last time this stock dipped, though, aren't nearly as bothered. It's still up by 173% from its lowest point last March.

Investment manager pointing to a stock chart.

Image source: Getty Images.

The Delta variant is making it harder for surgical candidates to schedule dates to go under the knife. Is this a good reason to avoid buying Intuitive Surgical stock now, or could it be another opportunity to scoop up shares at an attractive price?

Why Intuitive Surgical stock is down

Intuitive Surgical's business has been under pressure since the beginning of the pandemic. The types of procedures the company's da Vinci surgical systems assist with generally get scheduled weeks in advance following multiple appointments with a variety of healthcare professionals. 

The possibility that hospitals and intensive-care units would once again be overrun with unvaccinated COVID-19 patients this long after vaccines became available didn't factor into the company's look forward a few months ago. The stock began sliding in September after Intuitive Surgical CFO Marshall Mohr told investors that profits in the second half of 2021 might not be as strong as they were in the first half.

A research note from Citigroup analyst Joanne Wuensch drew extra attention to Mohr's remark. Wuensch also lowered Citigroup's rating on the stock from buy to neutral.

When Intuitive Surgical reported its second-quarter results in July, management boosted its forecast for procedure growth to a range of 27% and 30%, up from the 22% to 26% range it had guided for a few months earlier. Before the end of 2021, the actually figures could plummet due to the highly infectious Delta variant and stubbornly persistent vaccine hesitancy among a fraction of the population.

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Image source: Getty Images.

The pandemic is bad for Intuitive Surgical's competition, too

One important thing to remember about Intuitive Surgical right now is that the pandemic is applying a lot more pressure to the its future and would-be competitors. The industry champion might have to make some slight adjustments to this year's earnings guidance, but it's still going to earn heaps for investors.

ISRG Net Income (Quarterly) Chart

ISRG Net Income (Quarterly) data by YCharts

During the most intense periods of COVID-19 lockdowns last year, Intuitive Surgical's earnings dipped significantly. The leader in the robot-assisted surgery industry never reported a loss, though.

Smaller rivals that were losing money before the pandemic, such as Asensus Surgical (ASXC 0.05%) are finding it as difficult as ever to get hospitals to invest in new robotic surgery systems. That company (formerly known as TransEnterix) received 501(k) clearance from the FDA for its Senhance Ultrasonic system in January 2019 to be used in performing minimally invasive abdominal surgeries. Revenue from Senhance systems and their consumable accessories didn't even reach $1 million in 2021's second quarter.

Well-established medical device giants like Medtronic and Johnson & Johnson could put competitive pressure on Intuitive Surgical. At the moment they're focusing on surgical procedures that don't overlap and will most likely continue doing so for the foreseeable future. It takes a lot of resources and time to produce clinical data that proves a new system can improve outcomes enough to justify the enormous switching costs. 

In the numbers

Despite sliding in recent weeks, shares of Intuitive Surgical still carry an extremely high valuation. The healthcare stock has been trading at around 68.6 times forward earnings expectations.

The latest pandemic surge could result in disappointing earnings figures that don't quite meet the expectations the company set just a few months ago, when daily new case figures were relatively low. Over the long run, though, this company has everything it needs to grow into its valuation and continue outperforming the market.

Cory Renauer has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Intuitive Surgical. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2022 $580 calls on Intuitive Surgical and short January 2022 $600 calls on Intuitive Surgical. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Intuitive Surgical Stock Quote
Intuitive Surgical
$273.61 (1.19%) $3.22
Johnson & Johnson Stock Quote
Johnson & Johnson
$178.05 (0.03%) $0.05
Medtronic Plc Stock Quote
Medtronic Plc
$79.34 (0.38%) $0.30
Asensus Surgical, Inc. Stock Quote
Asensus Surgical, Inc.
$0.41 (0.05%) $0.00

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