Should You Pick Intuitive Surgical Stock At $370?

Intuitive Surgical (NASDAQ: ISRG) recently reported its Q1 results, with revenues and earnings beating the street estimates. The company reported revenue of $1.89 billion and adjusted earnings of $1.50 per share, compared to the consensus estimates of $1.87 billion and $1.41, respectively. The company’s upbeat performance was driven by strong global da Vinci procedure volume, which was up in the mid-teens.  In this note, we discuss Intuitive Surgical’s stock performance, key takeaways from its recent results, and valuation.

Firstly, looking at its stock performance, ISRG stock has shown strong gains of 35% from levels of $275 in early January 2021 to around $370 now, vs. an increase of about 30% for the S&P 500 over this roughly three-year period. However, the increase in ISRG stock has been far from consistent. Returns for the stock were 32% in 2021, -26% in 2022, and 27% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that ISRG underperformed the S&P in 2022.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Health Care sector including LLY, UNH, and JNJ, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could ISRG face a similar situation as it did in 2022 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, ISRG stock looks like it is appropriately priced. We estimate Intuitive Surgical’s Valuation to be $394 per share, not far from its current levels of $370. At its current levels, ISRG stock is trading at 18x revenues, aligning with the stock’s average P/S multiple over the last five years.

Coming to the latest quarter, Intuitive Surgical’s revenue of $1.89 billion reflects an 11% y-o-y growth driven by a 16% rise in worldwide da Vinci procedure volume. The company placed 313 da Vinci systems during the quarter, similar to what it placed in the prior-year quarter. However, its total installed base increased 14% since March 2023. Intuitive Surgical secured the U.S. FDA approval of its next-generation platform — da Vinci 5 – in March 2024. It placed eight of its new systems during the quarter. The new platform will likely bolster sales growth in the coming years. The company’s operating margin expanded around 200 bps to 24.8% in Q1. The company’s bottom line stood at $1.50 on an adjusted basis, reflecting a 22% increase over the prior-year quarter.

Looking forward, Intuitive Surgical raised its projected global da Vinci procedure volume growth to 14%-17% in 2024, versus its prior 0utlook of 13%-16%. Overall, Intuitive Surgical navigated well in Q1, with upbeat results and robust guidance. However, its stock has already risen 10% this year, and we think investors willing to enter will likely be better off waiting for a dip.

While ISRG stock appears appropriately priced, it is helpful to see how Intuitive Surgical’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 4/23/2024
[2] Cumulative total returns since the end of 2016

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