Intuitive Surgical (ISRG -0.89%) had plenty of good news for investors during its first-quarter earnings report. The robotic surgery leader reported an increase in revenue and procedures, and grew its base of installed systems. The company even lifted its forecast for full-year procedure growth. Intuitive now says the growth rate may be between 12% and 16%. That's up from 11% to 15%. The low end of this forecast includes the idea of coronavirus disruptions, and the high end assumes a drop in coronavirus cases.
Still, the road may not be completely smooth for Intuitive. And any bumps could weigh on share performance. In fact, there are two problems in particular that investors should keep their eyes on. Let's take a look at each one.
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1. The future of COVID-19
As Intuitive mentioned in its forecast, we shouldn't forget about the potential impact from the pandemic. It's already made things difficult for Intuitive in the past. At times when cases have been particularly high, hospitals have turned their attention to treating coronavirus patients. And that's resulted in postponed surgeries with Intuitive's da Vinci system. Surgeons use the da Vinci for minimally invasive procedures, from hernia repair to hysterectomy.
Hospitals pay to buy or lease the da Vinci. But they also pay for tools and services -- and this brings in revenue for Intuitive every time a procedure is done. When hospitals postpone a procedure, that also delays revenue Intuitive would have generated. Coronavirus cases hurt procedure growth in France during the first quarter. And China showed signs of slowing in the later part of the quarter due to coronavirus cases. Intuitive's efforts to expand the use of its systems also are at risk: Coronavirus cases in the U.S. resulted in delays for the company's trial of the da Vinci SP model in colorectal surgery.
All of this means that as waves of the coronavirus hit various countries, Intuitive may feel the impact. The good news is recovery has been quick. As soon as cases decline, hospitals have rushed to reschedule surgeries. For example, omicron cases weighed on U.S. procedures in January -- but da Vinci procedures rebounded in February and March as the number of coronavirus patients decreased.
2. The state of hospitals and their finances
The second headwind for Intuitive is also related to hospitals. But now we're not talking about scheduling. Instead, the problem is hospitals' finances. There are various factors at work here. They include staffing shortages, supply chain problems, and inflation. And it will be costly for hospitals to borrow money to buy devices as interest rates rise.
This means it's likely to be more difficult for hospitals to invest in da Vinci systems and the accessory and servicing fees that go along with them. The da Vinci robots range in price from about a half a million dollars to $2.5 million, according to a report in Annals of Laparoscopic and Endoscopic Surgery. Service contracts range from $80,000 to $170,000 annually. And instrument costs range from $700 to $3,500 per surgery.
Of course, hospitals eventually recoup their costs depending on the volume and type of procedures. But in today's environment, they may hesitate to make an initial investment in robotic surgery or expand their platform. Instead, they might wait until the environment is more favorable.
What does this mean for investors?
Does this mean you should avoid Intuitive shares right now? Not if you're a long-term investor. These headwinds could hurt Intuitive's procedure volume, product installs, and revenue in the near term. And that might hold the shares back. But these are temporary problems that don't change a couple of important facts.
First, Intuitive is the leader in robotic surgery by far. It holds more than 79% of the market, a BIS Research report shows. And that probably won't change anytime soon. After hospitals invest so much in a system and surgeons train on the system, it's unlikely they'll switch to another. And second, Intuitive has a solid earnings track record. It's demonstrated its ability to grow revenue and profit over time.
ISRG Net Income (Annual) data by YCharts
It's important to understand that the challenges above could be a problem for Intuitive. They could weigh on finances and the share price. But these problems are unlikely to hurt Intuitive's future prospects. This means it's probably worth weathering a potential storm and holding on to Intuitive for the long haul.
