Up 25% This Year, Will The Solid Q2 Performance Help Intuitive Surgical Stock Extend Its Winning Streak?

Intuitive Surgical (NASDAQ: ISRG) recently reported its Q2 results, with revenues matching and earnings exceeding our estimates. The company reported revenue of $2.0 billion and adjusted earnings of $1.78 per share, compared to our estimates of $2.0 billion and $1.55, respectively. The company’s upbeat performance was driven by strong global da Vinci procedure volume, which was up 17% y-o-y.  In this note, we discuss Intuitive Surgical’s stock performance, key takeaways from its recent results, and valuation.

Firstly, let us look at its stock performance. ISRG stock is up around 25% this year, outperforming the broader S&P 500 Index. Looking at a slightly longer term, ISRG stock has shown strong gains of 50% from levels of $275 in early January 2021 to around $415 in mid-July, 2024, aligning with the gains 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 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, assuming it opens around $445 on July 19, as indicated by the after-market price. We estimate Intuitive Surgical’s Valuation to be $462 per share, reflecting a 20x P/S multiple which is aligned with the stock’s average P/S ratio over the last four years.

Coming to the latest quarter, Intuitive Surgical’s revenue of $2.0 billion reflects a 6% y-o-y growth driven by a 17% rise in worldwide da Vinci procedure volume. The company placed 341 da Vinci systems during the quarter, including 70 da Vinci 5 systems, that were launched in the U.S. earlier this year. Intuitive Surgical’s total installed base increased 14% y-o-y to 9,203 systems in Q2. The company’s operating margin expanded around 340 bps to 28.2% in Q2. The company’s bottom line stood at $1.78 on an adjusted basis, reflecting a 25% increase over the prior-year quarter and well above our estimate of $1.55.

Looking forward, Intuitive Surgical narrowed its projected global da Vinci procedure volume growth to 15.5%-17% in 2024, versus its prior 0utlook of 14%-17%. Overall, Intuitive Surgical navigated well in Q2, with upbeat results and robust guidance. Nevertheless, given the anticipated rise of approximately 7% on July 19, its stock would appear to be appropriately priced.

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 7/18/2024
[2] Cumulative total returns since the end of 2016

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