Intuitive Surgical (NASDAQ:ISRG) posted a solid fourth quarter performance that sailed past Wall Street expectations and removed, at least for now, the sour taste in investors' mouths from last month's forceful bear thesis presented by Citron Research. How did Intuitive squeeze the juice out of this short seller's call?
Intuitive's top line grew an impressive 23% for the December quarter, outpacing analyst expectations by $25 million to settle at $609 million. Da Vinci systems and their related consumable products, Intuitive's razor-and-blades one-two punch, posted top line gains of 18% and 29%, respectively. The latter was fueled by robust procedure growth of 25%, mostly driven by gynecology and general surgery areas and offset by continued headwinds in prostatectomy, which declined 17% in the United States due to changing clinical practices. To make things even sweeter, that revenue upside flowed right down the income statement, leading to earnings per share of $4.25 and easily exceeding consensus expectations of $4.06.
Guidance was equally strong, with 2013 procedure growth pegged between 20% and 23%, and revenue growth following only a step behind at 16% to 19%. That rosy outlook leap-frogged existing analyst expectations, and should result in some freshly crafted estimates and price target adjustments in the morning.
During the Citron-induced meltdown of late December, I urged shareholders to stop panicking as the stock plummeted more than 10% to as low as $476 per share. Since then, shares have risen some 9% to close above $518. Following Tuesday's release, and assuming after-hours pricing levels persist, shares are set to open an additional 9% higher on Wednesday.
I don't say this to gloat in short-term victory, but rather to shed light on one of the most difficult aspects of investing – managing emotions. I know first hand how quickly a well structured argument, like Citron's, can change one's outlook on a stock. In this case, Citron's points are reasonable enough to merit implementing into an ongoing assessment of the company, but should be considered far from the judge, jury, and executioner for this compelling medical robotics story.