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Should You Buy Stock in Intuitive Surgical After Its Earnings Hit?

By Dan Carroll - Apr 18, 2013 at 10:01PM

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Chalk up another victory for this company's most recent quarter

If you're looking for a hot stock to buy in the health-care industry, few have garnered the attention that Intuitive Surgical (ISRG 2.64%) has lately. The medical robotics maker has drawn in both bullish and bearish opinion aplenty as it pushes its surgical robots, although the company's shares have fallen more than 13% over the past year, and now sit far off its 52-week high. Earnings season is a chance for redemption, however -- but did Intuitive Surgical make the cut, and is it worth your investment?

Climbing higher on earnings
Analysts expected big things from the company, projecting double-digit growth in both revenue and earnings per share. Their confidence was justified: Intuitive hasn't whiffed on earnings in the past year, and the company's been one of the brightest success stories of recent times with its innovative da Vinci surgical machine.

This quarter, Intuitive did it again. The company's revenue jumped to more than $611 million, outstripping analyst expectations by nearly $30 million, and growing a whopping 23.4% year over year. Intuitive's earnings similarly impressed, with net income soaring to $189 million, for an EPS total of $4.56. That result absolutely shredded projections of $3.99, and represented year-over-year growth of more than 30%.

Revenue from instruments and accessories drove the growth engine this quarter, jumping 26%. The company showed few signs of the supposed dangers of robotic surgery touted by some in the health-care field recently. If the sales are any indication, hospitals are still embracing the new technology's less-invasive properties that Intuitive markets as promising faster recovery for patients.

Intuitive's real victory this quarter came from procedural growth, however. Procedures are perhaps the most important metric for shareholders to watch, as they signal how often hospitals are using the da Vinci and its accessories. While product sales are nice, procedural growth will make or break the robotic surgery industry as doctors and hospitals catch on to the robotics trend. Fortunately, Intuitive posted an 18% growth in procedures this quarter, with general surgeries and gynecological procedures fueling that number. Prostatectomies fell in the U.S., but one procedure isn't enough to sink Intuitive: The da Vinci is approved for a wide range of surgeries, something that safeguards the company against a decline in any one area.

That 18% is a slight fall from the 20% procedural growth the company recorded in 2012. But it's nothing to fret about; Intuitive hit this earnings report right on the mark.

Is now the time to buy?
Investors haven't liked what they've seen thus far, as shares of the company have plunged 4% in early after-hours trading after falling 2.8% during the day. However, the market's pessimism is your opportunity.

Intuitive's still growing procedures and product sales despite all the PR negativity that has surrounded the medical robotics industry lately. As the da Vinci gains approvals and usage in more general surgeries, the technology will only become more widespread, with more doctors feeling comfortable using the device. That diversity is key: Fellow medical robotics maker MAKO Surgical (MAKO.DL) has struggled with sales growth as it markets its robotics devices for niche orthopedics procedures, and the company has yet to reach profitability. MAKO, with its small size and struggling financials, is much more exposed to the ups and downs of this growing industry.

Not so for Intuitive. This is already a robotics juggernaut, and it's firmly leading the pack into the next wave of medical device innovation. The market's sell-off is a great point to pick up a great company on a dip. Intuitive hasn't disappointed so far despite its slumping stock, and this earnings season chalked up another victory for this innovative company.

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Stocks Mentioned

Intuitive Surgical, Inc. Stock Quote
Intuitive Surgical, Inc.
ISRG
$224.16 (2.64%) $5.76
MAKO Surgical Corp. Stock Quote
MAKO Surgical Corp.
MAKO.DL

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